Police said two men - aged 18 and 59 - were in their home on Garema Road, Orange about 7pm on Wednesday when a 27-year-old man, who was not known to them, came to the front door and spoke to them.

The man produced a knife and threatened the two men.

The older man fled the unit and police were notified. The younger man could not escape and remained in the home with the armed man.

Map showing location of Garema Road, Orange

Officers from Central West Police District attended and established a perimeter and began negotiations.

Just after 11pm, a fire took hold in the unit which was allegedly deliberately lit by the intruder.

Police approached the unit and the 18-year-old man escaped the fire. The 27-year-old was then arrested after walking out and threatening police with a hammer.

Firefighters began to extinguish the blaze and neighbouring units were evacuated.

Both men were treated at the scene. The accused has since been taken to Orange police station where he is expected to face several charges.

One officer was treated on scene for a dog bite during the course of the operation.

Anyone with information about this incident is urged to contact Crime Stoppers on 1800 333 000 or https://nsw.crimestoppers.com.au.

Information is treated in strict confidence.

Police remind the public not to report crime on NSW Police social media pages.