The suspect was identified by police as 37-year-old Gokmen Tanis.

"The chief suspect has been arrested," a tweet from the city of Utrecht said.

Earlier Dutch authorities raised the terrorism threat to its highest level in Utrecht province following Monday's shooting.

Schools were told to shut their doors and paramilitary police increased security at airports and other vital infrastructure and also at mosques.

Prime Minister Mark Rutte convened crisis talks, saying he was deeply concerned about the incident, which came three days after a lone gunman killed 50 people in mass shootings at two mosques in the city of Christchurch, New Zealand.

However Turkey's official Anadolu news agency said the suspect's relatives believe he shot at someone close to the family due to "family issues".

Utrecht mayor Jan van Zanen said a terror motive was assumed, but Rutte did not address the motive.

"Our country today has been jolted by an attack in Utrecht," the prime minister said in a statement.

"Police and prosecutors are looking into what exactly happened. What's known now is that there was shooting at people sitting in a tram in Utrecht."

The Algemeen Dagblad newspaper, citing a witness, said the gunman had targeted one woman on the tram and then shot other people who had tried to help her.

Dutch television showed counter-terrorism units surrounding a house in Utrecht.

The Netherlands' fourth largest city with a population of around 340,000 is known for its picturesque canals and large student population. Gun killings are rare in Utrecht, as elsewhere in the Netherlands.

Australian Associated Press