Three men are being hunted by police after an officer was threatened with a gun by one of them.
Pupils at two nearby schools were kept inside buildings as officers searched the area around Coleridge Street, Hove, East Sussex.
Firearms officers and the force helicopter also joined the hunt following the alert at around 11.45am, Sussex Police said.
A police spokesman said: "There are no threats to nearby schools Blatchington Mill and Hove Park. However, the schools have been informed of the incident and advised to keep pupils inside as a precaution."
Parents were advised by police not to collect their children while the search for the three suspects continued.
Chief Superintendent Graham Bartlett said: "The head teachers at nearby schools have been advised and we are asking parents not to attend the schools at this stage. The pupils are all being kept inside the buildings. However, there is no threat to their safety and police officers are also present.
"Armed officers are currently searching the area for the men and we would ask anyone who sees three men acting suspiciously in the area to contact police immediately."
Mr Bartlett later added: "The search for these three men continues. However, due to the lapse in time and the high police presence in the area, we believe the initial threat no longer remains and residents and school pupils are advised that they may continue with their day as normal.
"Intelligence work continues around these men and police officers will remain in the area today. At no point has there been any threat to any members of the public."
He urged people who witness anyone with a gun to avoid approaching them and dial 999.
One pupil, writing on Twitter, said: "My school and the whole area is on lockdown because there are three men running round Hove with a gun. So scary."
Janet Felkin, headteacher at Blatchington Mill, later said the school had returned to normal and pupils would go home at the usual time. In a message to parents, she said: "You need to thank and congratulate your children as they have behaved exceptionally well, considering the very difficult conditions they have had to endure this lunch-time.
"I thank you for your support and look forward to a calm and peaceful day tomorrow."