UPDATED 3.25PM: Four people are dead and 15 are wounded after a hijacked beer truck ploughed into a crowd and crashed into a department store in central Stockholm, in what Sweden's prime minister called a terrorist attack.

Police say they arrested one person in a northern Stockholm suburb after circulating a picture of a man wearing a grey hoodie in connection with the investigation into Friday's attack.

Swedish public broadcaster SVT reported Swedish police had arrested a second man and he had a connection to the previously arrested person, citing police sources.

The police declined to comment on whether it had arrested any additional suspects.

"Our message will always be clear: you will not defeat us, you will not govern our lives, you will never, ever win," Prime Minister Stefan Lofven, who had earlier described the assault as a terrorist attack, told a news conference.

"Our thoughts are going out to those that were affected, and to their families," Sweden's King Carl Gustaf said in a statement, while European Union chief executive Jean-Claude Juncker said an attack on any of the bloc's member states "is an attack on us all".

There was no immediate claim of responsibility.

Police say security at Swedish borders has been heightened and have not ruled out the possibility other attackers were involved.

Australian tourist Glen Foran described witnessing the rampage on Drottninggatan (Queen Street): "I turned around and saw a big truck coming towards me. It swerved from side to side. It didn't look out of control. It was trying to hit people.

"It hit people; it was terrible. It hit a pram with a kid in it, demolished it.

"It took a long time for police to get here. I suppose from their view it was quick, but it felt like forever."

Investigators have removed the truck from the department store, and the area of the attack remained evacuated, including the main rail station, and cordoned off late on Friday.

A Reuters witness at the scene saw police officers put what appeared to be two bodies into body bags.

Bloody tyre tracks showed the path of the truck, which was stolen by a masked hijacker while making a beer delivery to a tapas bar further up Drottninggatan, according to a Spendrups Brewery spokesman.

"We were standing by the traffic lights at Drottninggatan and then we heard some screaming and saw a truck coming," a witness who declined to be named told Reuters.

"Then it drove into a pillar at (department store) Ahlens City, where the hood started burning. When it stopped we saw a man lying under the tyre. It was terrible to see," said the man, who saw the incident from his car.

Several attacks in which trucks or cars have driven into crowds have taken place in Europe in the past year.

Islamic State claimed responsibility for an attack in Nice, France, last July, when a truck killed 86 people celebrating Bastille Day, and one in Berlin in December, when a truck smashed through a Christmas market, killing 12 people.

The attack was the latest to hit the Nordic region after shootings in Danish capital Copenhagen in 2015 that killed three people and the 2011 bombing and shooting by far right extremist Anders Behring Breivik that killed 77 people in Norway.

Sweden has not seen a large-scale attack, although in December 2010 a failed suicide bombing killed the attacker only a few hundred metres from the site of Friday's incident.