The Colac man likened an eight-hour siege in the city overnight Wednesday, that ended in a man dying, to footage of war-torn Afghanistan.

About 11pm police rushed to Calvert Street where a man was holding four people, including two teenagers, at gunpoint.

Victoria Police's Special Operations Group secured the safe release of the hostages about 4.30am yesterday.

Despite ongoing negotiations the man, a 51-year-old Colac resident, took his own life about 7.05am.

Mr Veitch, who lives at the rear of the residence, said his wife awoke to what sounded like gunshots in the middle of the night.

The disturbance roused him and he found three armed policemen - one with a police dog - in his backyard.

"It seems surreal," Mr Veitch said.

"You see it on television and then they (armed police) are in your backyard in Colac," he said.

About 3am he heard the amplified voice of a police negotiator talking to the man at the centre of the stand-off.

"I could see a dark figure and I turned on the light," Mr Veitch said.

"It was a fully-armed police officer with a helmet, rifle, night glasses.

"The negotiator was saying 'Come out now, you are only making it harder for yourself'."

"He looked just like how you see soldiers in Afghanistan."

A police officer told him there was "an incident" next door and advised him to go inside and shut the door.

About 5.30am Mr Veitch heard the dog barking again.

There were police dogs in his backyard and his own dog was "cringing back in its kennel".

Police reportedly heard a gunshot just after 7am.

The man was later found dead.

Police confirmed he died from "self-inflicted injuries".

Mr Veitch said he and his wife never heard the last gunshot.

A Victoria Police spokeswoman confirmed the force's ethical standards committee would investigate the incident.

"The committee is travelling to Colac where it will have an overseeing role," she said.

Calvert Street was yesterday barricaded. A report will be prepared for the coroner.

Anyone in need of help and support or considering harming themself can phone Lifeline 24 hours a day on 131 114. Young people can call the Kids' Help Line 1800 551 800.