The suspected attacker, described as being in his 20s, was arrested after being shot and wounded.
Police have categorised the incident as suspected terrorism.
The condition of the eight victims is not known.
Police were first called to the scene, near Bangårdsgatan, at 2.54pm.
They arrived at the scene at around 3.10pm after which the suspect was shot in the leg.
According to The Local police were first called shortly before 3pm arriving on the scene at around 3.10pm.
Police have said the situation is now “under control” and there is no indication additional suspects were involved in the attack.
The suspect, aged in his 20s, is being treated for his injures at a local hospital under police guard.
Local police chief Malena Grann said: “We are investigating whether there is any terror motive.
“We are working closely with security police on this.”
Police have not confirmed the weapon used in the suspected attack.
In a statement Swedish prime minister Stefan Lofven condemned the attack commenting: “We respond to these appalling actions with the joint strength of the society.
“We are reminded of how fragile our secure existence is.
“I want to ask everyone to send their thoughts to those affected by the violence and to the men and women working in healthcare, police and in the municipality who are caring for the injured and re-establishing security.”
Police originally categorised the incident as attempted murder but changed this at 6.47pm to suspected terrorism.
Vetlanda, a town in Sweden’s southern county of Jonkoping, has a population of around 14,000.
Police roadblocks remain in place across Vetlanda and the town’s train station has been closed.
Swedish interior minister Mikael Damberg said: “Several people are seriously injured.
“These are terrible events and my thoughts go to the victims and their relatives.
“Right now it is unclear exactly what happened and what the motive was.
“The police have arrested a suspected perpetrator and have initiated a special incident to handle the development of the incident and create security in Vetlanda.”
More to follow…