Knife wielding man lights fire on yacht

Police are trying to negotiate with a man, believed to be armed with a knife, who has started a fire on a yacht at Lake Macquarie, in the NSW Hunter region.

The incident began at 10:30 on Tuesday when officers tried to speak to the man who was on the boat that's moored 200 metres off shore in Carey Bay, a police spokeswoman told AAP.

The man allegedly refused to comply with directions, and instead started a small fire on the back of the boat.

Police negotiators are trying to speak with the man and have asked that the public avoid the area until the situation is resolved.