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Armed Rotorua police have been called to the Koutu area after a dispute involving a rifle.
A Northern Police Communications spokesman said it appeared one neighbour had threatened another with a rifle on Taharangi St.
Police were at the scene and it was now under control, he said.
One person is being spoken to by police.
A witness, who was working close to the area, said she saw armed police calling for a man to come out of his property with his hands in the air.
"It was all happening at once, there were police everywhere and they were shouting 'put your hands up'," she said.
About two armed policemen were also hiding in nearby bushes waiting for the man to appear, when a white van pulled up and three people got out, she said.
She said a woman appeared to have been walking towards the policemen trying to talk to them. She was followed by another woman and a man.
They all looked like they were in their 20s or younger, the witness said.
Police then took away the young man.
Police turned away traffic on Lake Rd when the ordeal was happening, she said.
It lasted about 20 minutes.
Residents who spoke to the Rotorua Daily Post said they hadn't heard or seen anything before police arrived.
"We didn't know what was going on, we were just told by police we couldn't go to the end of the cul-de-sac," one resident said.
Another said she had seen on Facebook people uploading pictures and videos of police with guns down the cordoned-off road.
"We were out in town when it all happened, we just got told we couldn't go home by police. We were waiting down the other end of the road for quite some time."
By Stephanie Arthur Worsop and Adriana Weber of the Rotorua Daily Post