Police were called to a unit block in Uhrig Road, Lidcome about 7.20am after numerous reports to triple zero of a man acting suspiciously.
Heavily armed police, some carrying semi-automatic weapons and wearing camouflage, set up a perimeter around the block of units, located near Stadium Australia.
The public is urged to avoid the area, in Sydney's west.
Roads affected include Uhrig Road, Carter Street and Canning Street are currently closed.
Police said there had been no reports of injuries.
Tuesday's dramatic police presence follows a fatal shooting inside a Lidcome unit on Monday.
Two men have since been charged with the murder of the 38-year-old man, in what police described as a gangland-style attack.
The victim was rushed to hospital about 4am on Monday but died a short time later. A second man was found at the scene with non-life-threatening injuries.
Officers arrested a 21-year-old man on Monday afternoon after a car crashed into a parked vehicle, NSW Police said.
Police found a firearm in the car and later charged the man with murder and wounding a person with intent to cause grievous bodily harm.
Detectives then raided a home on Spurway Street in Ermington, near Lidcombe, around 8pm and arrested a 22-year-old man.
He was also charged with murder.
Both men were refused bail and are expected to face Burwood Local Court on Tuesday.
Police earlier said they believe the shooting was carried out by offenders with links to organised crime.
"This is a targeted attack. This is not a random attack," Superintendent Robert Toynton told reporters on Monday before the arrests.
He had described the gunmen as heavy-set and dressed in black clothes, and urged the public to come forward with any relevant information.
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