It happened inside the pharmacy on Main Street in Keansburg just after 3:30 p.m. Thursday. Police officers swarmed the scene on the ground and from above.
The state attorney general said it was a robbery that turned into a hostage situation once cops arrived on the scene.
Multiple officers opened fire, striking the suspect.
One officer was stabbed and rushed to the hospital in unknown condition.
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Residents said they weren't sure what was going on after the gunfire broke out.
"It sounded like fireworks at first and I went outside and the next thing I know there's cops everywhere and there's helicopters over the house," resident Joe Diana said.
Dozens of detectives worked into the evening scouring for surveillance video and interviewing witnesses and pharmacy employees at the Dunkin' Donuts next door.
Authorities are not saying what sparked the hostage situation, if shots were fired "at" cops or the extent of the officer's injuries.
"Our thoughts and prayers go out to the wounded Keansburg officer this afternoon," The New Jersey State PBA said. "The dangers of our work are constant."
The investigation is active and ongoing.
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