Police were called to a home in Newport just before 2am on Thursday, following reports of domestic violence.
Officers tried to speak with the man before the deadly encounter, police say.
"Whilst attempting to speak to a 39-year-old male a violent confrontation occurred," Assistant Commissioner Leanne McCusker told reporters.
She said police opened fire when he lunged at officers with a knife.
"Police did discharge their firearm with fatal critical injuries occurring to the male and the male, unfortunately, did die at the scene," she said.
The man, who was known to police, died at the scene, despite officers attempting to resuscitate him.
Ms McCusker said the call to police was made by a member of the man's family during a confrontation with his parents.
"The family is assisting the police with the investigation and we are ensuring that appropriate (care) is available for those family members," she said.
"This is a traumatic situation for everyone involved."
Welfare was being provided to the police officers and family members who witnessed the incident, Ms McCusker said.
A critical incident team is investigating.
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