In a broad daylight shoot-out, an unidentified gunman was killed on Monday by police in a state transport bus after he was suspected of trying to take the passengers hostage in suburban Kurla.

The incident occurred around 0930 hours inside a BEST bus in the northeast suburb, they said.

"The man fired at the police in 'Bail' bazar area of Kurla and was shot in retaliatory fire," Joint Commissioner of Police (Crime), Rakesh Maria said.

He said that the police suspected that the gunman was trying to take the bus passengers hostage and "this is being verified". He was pronounced dead at the Rajawadi hospital in Ghatkopar, police said but did not release details about him.

A passenger, who also sustained injuries in the incident, has been taken to the same hospital, where his condition is reported to be critical.