A disabled man was shot dead by police during an exchange of gunfire after an alleged hours-long hostage situation on a rural Victorian property.

Officers were called to a home on Menzies Drive in Daisy Hill, a tiny community south of Maryborough in the Victorian Goldfields, about 3pm on Thursday over reports a man had fired a gun.

In a statement, police said officers tried to talk to the armed man before the seven-hour siege that followed. A neighbour of the man told The Age he held her husband and son hostage for several hours.

The woman said her adult son was especially distressed, as he was held for longer than her husband, who escaped. Neither were physically injured, “but it could have been a lot worse”, she said.

The police dog squad, critical incident response team and special operations group were all called in to help.

The man allegedly fired at police about 10pm, and officers returned fire.

The man died at the scene. He lived with mental and physical disabilities, and mostly kept to himself at his rural property, people who knew him said.

He dealt with “continual pain” and was due to go into surgery before he was killed. The man’s neighbour said: “I don’t even think he knew what he was doing.”

Police confirmed nobody else was physically injured in the incident.