An estimated 20 people were killed at a crowded gay nightclub after a heavily armed gunman opened fire and seized hostages early Sunday, in one of the worst mass shootings in US history.

Terrified survivors -- who moments before were laughing and dancing with friends -- described how the gunman raked the club with bullets, prompting a police SWAT team to storm the venue.

The shooting is being investigated as a terrorist attack, officials said, adding that the suspect in the case, who was killed in a shootout with police, may have had "leanings" toward Islamic extremism.

"Unfortunately there are people who died from gunshot wounds, maybe around 20, inside the night club," Orlando police chief John Mina told a media briefing. He said around 42 injured were taken to area hospitals.

The chaotic events unfolded over a three hour period, beginning at around 2 am (0600 GMT) when shots rang out amid the throbbing music at the Pulse Orlando nightclub near closing time.

Police said the shots were fired by a gunman armed with an assault rifle and a handgun.

A police officer working "extra duties" at the club responded, joined by two other officers, who engaged the suspect in a gunbattle, Mina said.

"The suspect at some point went back inside the club where more shots were fired. This did turn into a hostage situation," he told reporters.

"At approximately 0500 hours (0900 GMT) this morning, the decision was made to rescue hostages that were in there."

Police then stormed the venue, using explosives and breaking through a wall with a wheeled armored vehicle known as a BearCat, and killing the suspect in a blaze of gunfire, according to the police account.

Mina said about 30 people were rescued during the operation.

It was unclear whether all the victims were killed by the gunman or if some died in the ensuing shootout with police.

It was the second shooting incident in the city in just over 24 hours, coming shortly after singer Christina Grimmie was shot dead late Friday by a gunman who stormed a theater where she had just finished a gig.

Mina said there was no indication of a link between the two shootings.

- 'Non-stop firing' -

Speaking to Sky News, clubber Ricardo Negron, who was inside when the shooting began, described how the gunman raked the club with bullets.

"People just dropped on the floor. I guess the shooter was shooting at the ceiling because you could see all the glass from the lamps falling," he told the network.

He described hearing "non-stop firing" which probably lasted less than a minute but felt like a lot longer.

"There was a brief pause in the shooting and some of us just got up and ran out the back."

"People have definitely been injured -- or worse."

Emergency vehicles swarmed the area, with at least one crisis command vehicle at the scene.

The Pulse club advertises itself online as "Orlando's hottest gay bar."

On its Facebook page, the club warned patrons: "Everyone get out Pulse and keep running."

- 'Blood everywhere' -

Witness Christopher Hanson said he heard "loud banging noises, like gunshots going off."

"I didn't see any of the actual shooters. I just saw bodies going down and I was ordering a drink at the bar.

"I fell down. I crawled out. People were trying to escape out the back. I just know that when I hit the ground, I was crawling and I hit my elbows and my knees," he told CNN.

He said there was "blood everywhere."

Rosie Feba was at the club with a friend when the shooting broke out.

"She told me someone was shooting. Everyone was getting on the floor," Feba told the Orlando Sentinel. "I told her I didn't think it was real, I thought it was just part of the music, until I saw fire coming out of his gun."

The incident came on the heels of a deadly shooting at the nearby Plaza Live Theater in which a heavily-armed gunman shot and critically wounded singer Grimmie, a former contestant on the popular TV talent show "The Voice."

She was rushed to hospital but died of her wounds.

The theater is located less than four miles from Pulse nightclub.

The Plaza gunman, 27-year-old Kevin James Loibl, then killed himself.

He was found to be armed with armed with two handguns, ammunition and a hunting knife, police said. His motive remains unknown.