New York City Police confirmed a Home Depot rental van drove the wrong way down a pedestrian and cycle path alongside the West Side Highway at full speed, hitting several people.
The truck then hit a school bus, which was carrying two adults and two children.
Police sources say the driver Sayfullo Saipov, a Florida resident who came to the US from Uzbek in 2010, then allegedly screamed 'Allahu Akbar' and got out of the vehicle. This has not been confirmed by authorities, although the NYPD commissioner said the statement made by the attacker when he exited the vehicle was "consistent" with a terrorist attack.
He was armed with two weapons and began running before being shot by police. The weapons later turned out to be imitation firearms.
New York terror attack: What happened in New York? Here’s what we know
Moment police allegedly 'shot down a shooter' after Manhattan rampage
One person has been taken into custody following the incident in Lower Manhattan
New York City Mayor Bill de Blasio described the attack "cowardly act of terror aimed at innocent civilians".
It comes as it emerged five friends from Argentina were among the victims killed in the terror attack.
Diego Enrique Angelini, Hernán Diego Mendoza, Alejandro Damian Pagnucco, Ariel Erlij and Hernan Ferruch were in New York on a school reunion to celebrate the 30th anniversary of their graduation from a polytechnic college in the central city of Rosário,
Witnesses reported hearing gunshots near Stuyvesant High School, a top-ranked public New York City school, at around 3pm local time on Tuesday afternoon which were later revealed to be from a uniformed police officer as he took down the attacker.
Bodies were pictured lying on the ground outside the school in what police are now treating as a terror attack.
Sayfullah Habibullahevic Saipov is the suspected killer
He later followed the tweet with: "We must not allow ISIS to return, or enter, our country after defeating them in the Middle East and elsewhere. Enough!"
It is not yet clear whether the attacker had any links to Islamic State.
He then added: "My thoughts, condolences and prayers to the victims and families of the New York City terrorist attack. God and your country are with you!"
In the UK, Prime Minister Theresa May said she is "appalled by this cowardly attack" in New York City and "my thoughts are with all affected."
New York Mayor Bill de Blasio said it was a tragedy of "the greatest magnitude".
New York Mayor Bill de Blasio gives an update on the situation
The van in this image is reported to have ploughed into several people in Lower Manhattan
He told reporters: "The is a very painful day in our city.
"This was an act of terror, a particularly cowardly act of terror aimed at innocent civilians.
"We know that this action was intended to break our spirit. But we also know that New Yorkers are strong, New Yorkers are resilient and our spirit will never be moved by an act of violence and an act meant to intimidate us."
He called on the public to be vigilant as he revealed more officers would be on New York streets in the coming days.
The mayor added: "I want to ask all New Yorkers and all Americans to keep the families of all those lost in your prayers."
New York Police Commissioner James O’Neill confirmed a 29-year-old male got out of the vehicle after driving the wrong way down the bicycle path and ploughing into several people before coming to a halt after striking the school bus.
He was brandishing two handguns and an officer at the scene “shot him in the abdomen”.
The guns were later revealed to be a “paintball gun and a pellet gun”.
New York Governor Cuomo added there is no evidence to suggest there is a wider plot, hinting this could be a lone wolf-style attack.
The counter-terror unit urged people to avoid the West Side Highway area while they deal with the incident.
The FBI has joined the New York City Police Department in investigating the incident and President Trump has been briefed.
The attacker was left injured in the incident and has been taken into custody. His injuries are not thought to be life-threatening.
John Williams, a 22-year-old student, told reporters at the scene that he heard about five gunshots before seeing a large man with curly being taken into custody.
President Trump takes to Twitter as he reacts to the atrocity
Emergency crews attend the scene on West Street in Manhattan, New York
"He seemed very calm," Williams said. "He was not putting up a fight."
Buildings were pit on lockdown and the bomb squad arrived at the scene while details of the incident remained unclear.
Images and videos have emerged revealed mangled bicycles strewn across the popular New York cycle path, which runs parallel to the West Side Highway on the western edge of Manhattan along the Hudson River.
One witness told News 4: “A guy got out with his biker jacket and started shooting up the place.
"All the kids were in the courtyard at P.S. 89 and started running.
"Then I saw the bus over there, all the kids went into this building. I went to go help the driver of this special ed bus, it looks like.
Armed police are on the scene and the President Trump has been briefed
"I wasn't sure why he was so spaced out and then I went to the other side, it was all caved on. A poor girl was stuck right above the wheel well. There were two kids that were just stuck by the window. It was all blown out."
The New York Fire Department said officials responded shortly after 3pm to reports of a mass casualty at Chambers and West Streets, near where the school is located.
The police say they are not looking for additional suspects.
Emergency services attend to victims as authorities battle to get the scene under control
Nearby buildings, including the inner city school, were placed on lockdown
Singer Josh Groban also tweeted after hearing shots while out walking his dog.
He tweeted: “Oh my god I just heard gun shots and ran with my dog. Downtown. F***.
“I hope everyone’s ok. Was half a block from me, didn’t see it but heard 8-10 quick rounds fired off. Be safe with your kids out there.”