TEL AVIV, ISRAEL - ISRAELI police were hunting on Sunday for a masked man who opened fire at a gay youth club in Tel Aviv, killing two people in an attack that struck fear among the liberal city's homosexual community.

The black-clad gunman used a pistol to target the group of young gays and lesbians at the entrance to the community centre in the heart of Israel's commercial capital late on Saturday and then fled, police and witnesses said.

A teenage girl and a man in his 20s were killed on the spot and 15 people were wounded, three seriously, police said, adding that a manhunt has been launched for the assailant.

It was the worst attack against country's gay and lesbian community.

'All indications point that this was a criminal incident and not a terror attack, which was most likely deliberately directed against the gay and lesbian community,' police spokesman Micky Rosenfeld told AFP.

Thousands of people gathered in the centre of the Mediterranean seaside city overnight to protest against the attack on the Bar Noar ('Youth Bar'), some waving rainbow banners and lighting candles for the victims. The victims were identified as Liz Tarbishi, 17 and Nir Katz, 26.

'At about 10.40 pm someone came over, all dressed in black and wearing a black mask,' one of the injured, Or Gil, told the Haaretz newspaper.

'I thought it was a joke at first, but he immediately opened fire. People took cover under the bed and tables, but there were no screams. I hid under a table with someone else. It's a small place; there's just one terrace. Once you're inside, there's nowhere to run.'

Police investigators were seen sifting through evidence at the scene while bloodied victims were taken by stretcher into ambulances.

On Sunday afternoon, hundreds of people gathered not far from the crime scene to protest against what many there branded as a 'hate crime'. Israeli Prime Minister Benjamin Netanyahu condemned the 'shocking murder' and called on police to do everything to bring the gunman to justice.

Tel Aviv police chief Shahar Ayalon ordered the closure of a nearby gay bar and urged such establishments to remain vigilant.