The Netherlands Times reported that a man was firing a crossbow from a balcony in the city of Almelo, with two bodies later discovered in the house. At first police tweeted that the situation was under control, but later escalated it to what is known as a GRIP 3, meaning there is a threat to the well-being of a population.
A tweet by Overijssel police did not refer to the crossbow incident, but said: "At the stabbing incident at the Mth Steynstraat in #Almelo two people died.
"A third victim was injured. One suspect has been arrested and injured.
"The further police investigation is ongoing."
Earlier they tweeted: "We are with many colleagues at a stabbing incident at the Mth Steynstraat in #Almelo.
"Colleagues had to use the firearm in this incident.
"The situation is not safe there at the moment. So do not come to this location."
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The incident happened on M.th. Steynstraat, which is a side street of Schoolstraat in the city.
Bystanders reported hearing "multiple shots".
Dramatic footage from the scene showed a topless man standing on the balcony of a flat with what appeared to be a crossbow.
Shots can be heard in the background.
Sharing the clip, Broadcaster RTV Ost tweeted: "These images show that a man with a crossbow was standing on the balcony."
The Tubantia website reported a total of six ambulances on the scene.
The GRIP system has six levels of severity, with the fifth being a crisis involving multiple regions, and the sixth being a national disaster.
There are no initial indications that the tragedy is terror-related.
Specifics about how the two people died are unclear, with the use of phrase "stabbing incident" implying a bladed weapon, rather than a crossbow, inflicted the fatal injuries.