The Department of Immigration and Border Protection has confirmed what it says was an incident at the Manus Island detention centre involving detainees and Papua New Guinea military personnel, with reports a weapon was discharged into the air.
A spokesman for the Department says the matter is being investigated by PNG authorities.
Ian Rintoul from the advocacy group, the Refugee Action Coalition, says he's been in contact with detainees following the violence.
He says there was sustained gunfire in the direction of the camp.
"The shots were certainly not into the air and there were quite a number - around 100 shots were fired. Most of them into the detention centre itself, and there are already photos circulating of bullet damage in accommodation units inside the detention centre. We haven't heard of anyone being injured by the bullets. There is a report of one of the Sudanese being injured by one of the bricks that was thrown earlier before the armed exchange happened but there is no doubt that we've seen a very dangerous incident."
One asylum seeker is said to have been injured when he was hit by a rock.
Initial reports suggest PNG navy personnel were among a group of locals that tried to storm the detention centre.
The violence reportedly broke out when a member of the local community tried to put an end to a football game being played by asylum seekers, who are at times allowed to leave the compound.
Mr Rintoul says detainees are experiencing extreme stress.
"People are extremely agitated. Given the scale of the attack and the number of shots that were fired, everybody is thinking about 2014 and the attacks that resulted in Reza Barati being killed, so the tensions are very, very high inside the detention centre. The level of anxiety is very high. There's extreme fear. All the guards either fled or hid inside the detention centre when it came under attack and the fact that you've got Navy personnel willing and able to carry out an armed attack on PNG police and the detention centre seems to require something more than monitoring. "
The federal opposition has called for a full investigation at the Australian-funded offshore processing centre.
It says the culture of secrecy must change and the Turnbull government must be up front about what has happened.
The Chief Executive of the group, Welcome to Australia, is urging the federal government to process people on Manus Island and Nauru immediately.
Mohammad al-Khafaji says Australia has a duty of care towards the detainees.
He says there have been a number of incidents on Manus Island and Nauru and he's worried by what happened on Friday night.
"If we can't guarantee the welfare of these people then we have to find an alternative humane solution for these people. These are people at the end of the day and we are responsible for their welfare and we've seen a number of incidents, and this is not the first time - it's quite alarming that this is happening."
Meanwhile, Amnesty International says the latest incident shows Australia's asylum seeker policy is not working.
The human rights group's spokeswoman says it's clear the Australian government cannot protect the rights and safety of asylum seekers and refugees in PNG.
"The recent US deal shows that the Australian government realises that this is a policy failure and they need to find a viable solution, but pulling out of the camps in October is going to have disastrous consequences for those who are still there. We need a clear plan around what's going to happen with those refugees - what is meant by closing these centres and we haven't had any information about what that means."
The Melbourne-based Human Rights Law Centre says Prime Minister Malcolm Turnbull must immediately evacuate the camp and bring the men to safety in Australia.
The Manus Island detention centre is due to close on October 31.
Immigration Minister Peter Dutton says people currently detained on Manus Island will not be coming to Australia, no matter how hard refugee advocates push.
