Authorities say 42-year-old Bassam al-Sheikh Hussein entered the bank branch Thursday with a shotgun and a canister of gasoline, took 10 people hostage and threatened to set himself on fire unless he was allowed to take out his money.

He needed the funds to pay for his father's medical bills, authorities said.

After hours of negotiations, he accepted an offer from the bank to receive part of his savings, according to local media and a depositors group that took part in the talks. He then released his hostages and surrendered.

Soldiers and police converged on the city's bustling Hamra district and sought to negotiate an end to the stand-off, the latest painful episode in Lebanon's economic free-fall, now in its third year. The country's cash-strapped banks since 2019 have slapped strict limits on withdrawals of foreign currency assets, tying up the savings of millions of people.

The gunman, identified as 42-year-old Bassam al-Sheikh Hussein, entered a branch of the Federal Bank carrying the canister, said a security official who spoke on condition of anonymity in line with regulations. The man fired three warning shots, the official said.

George al-Haj, head of the Bank Employees Syndicate, told local media that seven or eight bank employees were taken hostage along with two customers. The gunman released one hostage, who was taken away by ambulance.

Hussein had the equivalent of $A294,450 trapped in the bank and been struggling to withdraw his money to pay his father's medical bills, said Hassan Moghnieh, who as head of the advocacy group Association of Depositors in Lebanon took part in the negotiations.

Hussein's brother Atef, standing outside the bank, told The Associated Press that his brother would be willing to turn himself in if the bank gave him money to help with the bills and other family expenses.

"My brother is not a scoundrel. He is a decent man," Atef al-Sheikh Hussein said. "He takes what he has from his own pocket to give to others."

Lebanese army soldiers, police officers from the country's Internal Security Forces and intelligence agents surrounded the area.

Dozens of protesters gathered during the standoff, chanting slogans against the Lebanese government and banks, hoping that the gunman would receive his savings. Some bystanders hailed him as a hero.

Lebanon is suffering from the worst economic crisis in its modern history. Three-quarters of the population has plunged into poverty, and the Lebanese pound has declined in value by more than 90 per cent against the US dollar.

"What led us to this situation is the state's failure to resolve this economic crisis and the banks' and Central Bank's actions, where people can only retrieve some of their own money as if it's a weekly allowance," said Dina Abou Zor, a lawyer with the advocacy group Depositors' Union who was among the protesters. "And this has led to people taking matters into their own hands."

Australian Associated Press