The shootout erupted Friday morning in front of the iconic Empire State Building in the heart of Manhattan after Jeffrey Johnson, a former employee at a women's apparel business, killed a former colleague.

Nine people were wounded in the melee, all by friendly fire, police chief Raymond Kelly told reporters.

"It appears that all nine of the victims were struck either by fragments or by bullets fired by the police," he said.

Three of the wounded were still hospitalized in stable condition on Saturday, a police spokeswoman said.

Kelly had earlier identified Johnson, 58, as a "disgruntled former worker" from a women's apparel business called Hazan Imports who had been laid off about a year ago.

Johnson returned to his former workplace on Friday morning, where he got into an argument with the company's vice president of sales, 41-year-old Steven Ercolino, before shooting him in the head three times.

Mayor Michael Bloomberg said Johnson later turned the gun on police when they moved to arrest him, leading them to open fire.

It was the second fatal police shooting in Manhattan in less than two weeks. On August 11 police shot dead a man with a knife who was resisting arrest in Times Square.