Indonesian police are engaged a shoot-out with a group of suspected terrorists on the outskirts of the capital Jakarta, with one man reportedly shot dead following a raid, according to local and international news reports.

Tempo reported that a police raid on a house in Ciputat, South Tangenrang in West Jakarta has been ongoing since 7pm last night and was still unresolved this morning.

A police spokesperson, Boy Rafli Amar, was quoted as saying that aside from three terrorists who were refusing to surrender despite being surrounded, there were also active bombs at the location.

"We have communicated with them, asking them to surrender but they responded with shots," said Boy.

A report by Australia's ABC News said that police surrounded a house and that one member of the group was understood to have been shot dead.

ABC's correspondent said that a loud explosion hear when police attempted to storm the house, and shots rang out during the stand-off.

Police said that the men inside the house are linked to a man called Abu Omar, or Abu Umar, a terrorist who was shot dead by security forces.

Members of his terrorist cell are reportedly still at large and are allegedly behind the killings of two policemen last year.