Armed police stormed into Katikati today after a series of loud explosions came from a residential address.
Neighbours were told to keep indoors while police ambushed a property on Park Rd about midday today.
One neighbour told the Bay of Plenty Times she heard a loud bang, then the building caught alight.
The woman, who did not want to be named said big plumes of thick, black smoke then began erupting from the Park Rd address.
Another neighbour said she thought a group of young people were living in the shed, which was gutted by fire.
The woman, who did not want to be named, said she was told by a member of the Armed Offenders Squad to stay indoors as the shed contained volatile chemicals.
A reporter at the scene said more than a dozen firefighters were called to the address and used breathing apparatus while they put out the fire.
Police at the scene would not say why they were at the Park Rd address.
Local residents speculated the shed was being used as a P-lab.