A primary school is in lockdown after the incident unfolded at a rural property in Porepunkah, about 300km northeast of Melbourne.
Police are urging the public to stay clear of the dangerous and active situation in the town, known for its sweeping vineyards and scenery.
The Age has reported that the officers were killed in an ambush attack.
Victoria Police are yet to confirm any details.
Prime Minister Anthony Albanese said the government's thoughts were with the police, acknowledging there were "concerns" for "some of the police officers who are involved".
"The men and women who wear our uniform and wear the uniform of the police force, take risks each and every day," he said in Canberra.
Australian Federal Police Commissioner Reece Kershaw offered his thoughts and prayers to Victoria Police on behalf of the wider police blue family.
"We hope that they are all safe and well," he said.
"However, we're hearing that there are some grave concerns for some of those police officers, and our hearts go out to the community."
The Police Association Victoria told AAP it was aware of a critical incident that is impacting members.
"We have sent critical incident support teams to the area to assist and support the impacted members, their families and colleagues," the association said.
Following the incident, Porepunkah Primary School went into lockdown.
School Principal Jill Gillies said the school practised drills all the time, so the children were able to face the lockdown in a calm manner and were being entertained in their classrooms with some fun activities.
"We went into pre-emptive lockdown around 1130am. We were told that there was a situation unfolding," she told ABC radio.
"Just for the safety of the kids and just to keep everything nice and calm, we went into lockdown."The school has 104 children enrolled, and is located in the centre of the small town.
People have been told to avoid the area, which is home to about 1000 residents and supports a number of vineyards.
Locals told AAP they saw a number of police cars heading into the town.
"This is still an active incident and we will provide more information when it's operationally safe to do so," Victoria Police said.
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