Police are negotiating with a shirtless man wearing a barrister's wig who is thought to have a bomb and young female hostage in a law office near Sydney.

The siege began shortly before 9am when the man, aged in his 50s, and his daughter, aged 10 or 11, entered the barristers' chambers on the main street of Parramatta, a suburb about 20 kilometres from central Sydney.

Receptionist Betty Hor said he demanded to talk to a man whom she had never heard of, and when she told him that there was no one in the building of that name he became angrier and more frustrated until he "snapped" and threw a book at the reception desk.

"He said, 'Call the attorney general, I've got a bomb in my backpack". she said.

Ms Hor rang police who arrived on the scene after the man had locked himself and his daughter into one of the offices.

The man later appeared at a top window of the three-storey building shirtless and wearing a barrister's wig. He gave bystanders the thumbs up, before taking off the wig, spitting on it and giving the thumbs down sign.

Several hours later he smashed a window in the building with a bottle and reportedly shouted to police: "I don't care if I die". There was no sign of the girl.

Five hours after the siege began, armed police could be seen entering the building. Ambulances, paramedics and fire engines were on standby outside.