Thames Street was shut down for hours while the tactical response police prepared to enter a home where it was believed the offender was hiding.
A small crowd gathered at the nearby Hellenic Club to watch the dramatic scenes unfold.
Wollongong District Police Inspector Mark Walker said the siege was sparked after Lake Illawarra District Police officers spotted a man, who has not been identified, near the intersection of Princes Highway and Thames Street at about 1pm.
"[Officers] saw a male who they knew was wanted in relation to domestic violence offences which occurred on July 21 this year at Figtree," he said.
"The male went inside a block of units and police established a perimeter with the intention of apprehending the male inside."
Insp Walker said police decided to call in the tactical response team to the unit, believed to the man's home, because they thought he could have been armed with a knife.
"The male has allegedly threatened another person he knew with a knife two days ago however he was not seen with the knife today," Inspector Walker said.
"The male was potentially armed with a knife and for that reason a number of tactical resources were called to the location to try and complete the arrest procedure as safely as possible.
"We adopted our high-risk incident protocols for a number of hours until about 4.50pm when police breached the entry door of the premises.
"They have then searched the premises thoroughly however the wanted male was not inside.
"Police are now actively engaged in trying to apprehend the male."
Dozens of police including police rescue officers as well as a Wollongong Fire and Rescue crew attended the scene.
Insp Walker said the wanted man had contravened an apprehended violence order against his former partner.
A NSW Police spokesman said officers had been trying to apprehend the man for a "number of days".
Police have not released the man's description but will call for the public's assistance if required.
They are investigating whether the man escaped during the operation or prior to their arrival.