Moat, 37, was tracked down to Riverside in Rothbury, where eyewitnesses said police negotiators are talking to him as he sits on the ground cradling his shotgun.
Police snipers have surrounded Moat, who surfaced near allotments where a man fitting his description was seen on Thursday night.
Chief Superintendent Mark Dennett, the area commander, issued an urgent warning at 7.37pm for residents to stay indoors for their own safety.
Moat has managed to evade police for seven days after shooting his ex-girlfriend last Saturday morning and killing her new boyfriend. He shot and wounded an unarmed police officer 24 hours later.
Locals said the police activity was centred on allotments near the town centre where a man fitting Moat's description was spotted on Thursday night.
As armed police swamped the area an ambulance arrived and made its way to the river side.
Juliette Ballantyne, from Whitton View, said she had seen snipers down by the river.
Mrs Ballantyne, who lives to the east of Rothbury town centre, said: "I am nervous. My mother in law lives nearby. I hope she's okay."
Retired taxi driver Dave Murray, 67, of Knocklaw, said Moat appeared to have been chased through the village and was heading east before being cornered at the primary school tennis courts and bowling green.
He said: "There is nowhere for him to go, the river is on one side and this road and all the police on the other."
File photo: Rothbury is a small town about  north of Newcastle upon Tyne  
A major police operation is in progress in the United Kingdom town of , , in relation to the search for the 37-year-old gunman . A police cordon has been set up around riverside allotments in which Moat was thought to have been hiding, around 200 metres from the town centre. Police are negotiating with a man near the riverbank where the operation is taking place, who has them locked in a stand-off by holding a gun to his own head. Police are said to be moving away from the scene, and it is speculated that the incident may be coming to an end. A cordon remains established in the immediate vicinity of the incident and a 10 mile air exclusion zone has also been implemented.  The following roads are closed or have restriction:  "High Street, Church Street, Providence Lane, Bridge Street, Town Foot, and Brewery Lane". The North East Ambulance Service is on standby in case of casualties.

Police have confirmed the person matches the description of Moat, who is wanted for the shooting of his ex-girlfriend, her new partner (whom he killed), and  a police officer. Moat has repeatedly made threats to the police, and to the public at large.

Local residents have been told to "go home and lock the door" for their "own safety". People who attempt to leave their homes in the nearby area are ordered to go back inside by armed police officers. Armed police are on the scene, and an ambulance was seen to arrive. Residents have made reports of snipers by the riverside, with guns pointing at a man who they believe to be Moat. Residents also report that Moat is holding a gun (which has been described as looking like a sawn-off shotgun) to his neck. Negotiators are reported to be standing no more than 21 feet from Moat. There are also unconfirmed reports that the "best friend" of Moat, a Tony Laidler, has been admitted inside the cordon to assist with the negotiations. Food and water has been delivered to the suspect.

The footballer Paul Gascoigne is also present, outside the cordon, in Rothbury, claiming to be a friend of Moat. Gascoigne, on local radio, stated his intentions:  "I jumped in a taxi with broken ribs and brought some food for him, lager. I know he won't shoot me."