A tram derailed and smashed into a building in Milan Friday, killing one person and injuring "around 20" others, a police source said.

It was not yet known why the tram came off the tracks near the centre of the northern Italian city, a business hub currently hosting its Fashion Week.

The tram came off the tracks in the afternoon in Vittorio Veneto street. Several ambulances could be seen at the scene, with firemen wrapping shocked-looking passengers in gold emergency blankets.

"I just heard an enormous bang," said a 27-year-old called Anna, who was in her office nearby when the crash happened.

"I saw a bit of the tram had gone into a shop," said Anna, who did not want to give her last name.

Witnesses told the media at the scene that the tram had been travelling fast. One of the passengers told the ANSA news agency "I thought it was an earthquake".

"I was sitting and ended up on the floor, along with the other passengers. It was terrible," the passenger said.

The yellow and white tram could be seen slung across the road, just outside Milan's historic centre.

The police source said that one of the injured was in critical condition.

The local transport company ATM had no immediate comment.