The suspect exited his rental vehicle holding up two fake guns, before being shot by police and taken into custody. The incident happened around 3:05 pm (1905 GMT) close to schools as children in America's largest city celebrated Halloween.
Loved ones mourned the first deaths from a terror-linked attack in New York since September 11, 2001.
It was also the city's first such incident since a pipe bomb explosion in September 2016 in Chelsea, lightly wounding 31 people. An American of Afghan descent, Ahmad Khan Rahimi, was convicted of terrorism over that attack earlier this month.
The city, which has frequently been on high security alert since the 2001 Al-Qaeda attacks on the Twin Towers, is America's financial and entertainment capital, with a population of 8.5 million.
President Donald Trump decried the 29-year-old attacker, whose name and nationality has not yet been revealed, as "very sick" and a "deranged person."
New York police chief James O'Neill said that eight people were killed, at least six of whom were men. Eleven people were taken to hospital with serious injuries.
Bicycles and debris lie on a bike path after a motorist drove onto the path near the World Trade Center memorial (AAP) Source: AAP
The suspect drove a rented pickup truck from retailer Home Depot southbound down a bike and pedestrian lane, striking people before colliding with a school bus, injuring two adults and two children.
The suspect then stepped out of the vehicle, brandishing two apparent handguns, before being shot in the abdomen by a police officer, police said.
No Australians are believed to have been injured or killed in a lone wolf terror attack.
Authorities respond near a damaged school bus Tuesday, Oct. 31, 2017, in New York. Source: AAP
"The State Department has informed us that at this stage they do not believe any Australians are affected but the situation is still unfolding," Acting Prime Minister Julie Bishop told ABC radio on Wednesday.
Australia's Consul-General to New York Alastair Walton was in the area along the Hudson River when the attack happened.
"He said there are children everywhere in New York today because of course it's Halloween and it's an enormous celebration," Ms Bishop said.
"We think of those who have been affected by this, particularly those who have been killed, their family and friends must be devastated."
'Horrible tragedy'
A paintball gun and pellet gun was recovered at the scene, police said.
"It's a very painful day in our city. Horrible tragedy," said New York Mayor Bill de Blasio.
"Let me be clear, based on the information we have at this moment, this was an act of terror and a particularly cowardly act of terror aimed at innocent civilians, aimed at people going about their lives who had no idea what was about to hit them," the mayor added.
"We at this moment based on the information we have, we know of eight innocent people who have lost their lives. And over a dozen more injured."
"When the cops shot him, everybody started running away and it got a little bit crazy right there. So when I tried to look again, the guy was already down."
In this still image taken from video, emergency personnel respond to victims (AAP) Source: AAP
It was the most serious security breach in New York since Faisal Shahzad, a Pakistani immigrant, plant a car bomb in Times Square on May 1, 2010.
His explosive device failed to detonate and he was arrested shortly after boarding a flight to the Middle East. He pleaded guilty and said he was aiming to avenge deaths from US missiles fired from drones operating over Pakistan.
He was sentenced to life behind bars.
