The incident, which took place in the Wisconsin city of Waukesha at around 22:40 (GMT) has resulted in more than 20 people sustaining injuries, according to the Waukesha chief of police. According to the New York Post, the Waukesha Police Department confirmed police were responding to an incident at the parade but could not give the US tabloid further details.
Video footage from the parade shows a red vehicle travelling down the road at speed.
Bystanders appear to look ahead as the car continues out of shot and others scream.
A man can then be seen running down the road in the same direction as the red vehicle.
Separate footage appears to show police officers firing upon the vehicle.
JUST IN: Europe explodes with violent protests over Covid crackdown and mandatory vaccines
One man told a Fox 6 Now reporter "most of his family are in the hospital" but he and his wife managed to walk away.
According to the same reporter, a woman told him she saw the red SUV "barrel through" a group of dance team girls aged between 9 and 15-years-old.
According to Milwaukee News host Dan O'Donnell, witnesses claim the driver fired six or seven shots from his car window but this has not been confirmed.
The Waukesha Chief of Police confirmed to CBS more than 20 people were injured after a car sped through their Christmas parade today.
READ MORE: The real reason Putin is stepping up pressure in Belarus
He told the US broadcaster the scene is now safe and they’ve located the vehicle involved.
He also stated there is one person of interest.
Wisconsin Senator Tammy Baldwin, 59, responded to the reports by writing on Twitter: "The horrific violence at the Waukesha Christmas Parade is just heartbreaking.
"Please keep the victims in your prayers tonight."
Wisconsin Governor Tony Evers, 70, added: "Kathy and I are praying for Waukesha tonight and all the kids, families, and community members affected by this senseless act.
"I'm grateful for the first responders and folks who acted quickly to help, and we are in contact with local partners as we await more information."