One person has been killed and two more are seriously injured in the major incident in Woolwich.
Nick Raynsford, MP for Woolwich, told the BBC: "It's been verified one person is dead, two seriously injured."
He said it was believed that the victim was a serving soldier at the nearby barracks although the MoD has not confirmed this.
Reports suggest that a machete attack took place on John Wilson Street, which was followed by a shooting.
The man attacked with a machete was reportedly wearing a Help for Heroes T-shirt.
Another witness, Graham Wilders, told News Shopper: "I saw some blokes trying to resuscitate another man on the floor.
"We walked down to have a look and we saw a black bloke walking up there with a gun. Another bloke had two meat cleavers in his hand.
"A response team turned up. One of the blokes ran to the police car with the meat cleaver and they shot him. And then they shot the other one."
One unconfirmed eyewitness report said that two men ran over another man before getting out of their car and beheading him with a machete.
Raynsford said: "The circumstances are not yet clear. It's been suggested it was the product of a road traffic accident, but that's pure speculation.
"I'll be talking to everyone who is involved, we will be trying to do everything possible to try and ensure calm in the area. People will be very, very shocked.
"We think a serving soldier was the victim. We don't know the circumstances surrounding the incident.
"We do know a number of weapons have been seized. They include a gun, various knives, and a machete, apparently. The police clearly had to take action in order to try and arrest these individuals."
Further details are not known. Police confirmed they had been called to reports of an assault at 2.20pm.
Photos from the scene show a number of people on the ground at the scene.
Air Ambulance said: "We sent two responders in cars, three ambulance crews, two duty officers and London Air Ambulance to the scene. We still have staff on scene."