The gunman, identified as Russian-born Maxim Krovishey, told police in Lutsk that the bus is rigged with explosives and that a second passenger vehicle in the city is also carrying bombs, reports local media.
Police said that Krovishey – a convicted robber who has served at least two jail terms and has spent 10 years in prison – expressed frustration with “Ukraine’s system” on his social media pages.
Authorities have confirmed that the terrorist threw a grenade from the bus which did not explode because the pin was not pulled out.
The device was then defused by explosive experts, police said.
Krovishey has spoken on the phone to terrified relatives of the hostages urging them to call journalists to spread his demands or face the vehicle being blown up, it has been reported.
In a rambling statement posted online, the attacker reportedly claimed to have an accomplice operating “in a crowded area of the city”.
He said: “There are a lot of people with me – machine guns, grenades, two bombs.
LUTSK ON LOCKDOWN
“My death is not an obstacle for the explosions. The state has always been and is the first terrorist.”
Meanwhile, two bombs in capital Kiev have been defused near a train station.
It is unclear whether the explosives are linked to the hostage situation in Lutsk.
At around 12 noon local time, an anonymous person phoned police and told them the bombs which had been rigged to two shops in the city centre.
Mayor of Kiev Vitaly Klitschko said the devices had been “neutralised” while one of the controlled explosions was captured on video.
He said: “Police and explosives technicians checked this information and found dangerous objects.
BOMBS IN KIEV
“The explosive attached between the car and the kiosks was neutralised.”
In Lutsk, police say they have talked to the gunman over the phone and that his absurd demands include calling on senior Ukrainian officials to post videos saying they are “terrorist in laws”.
He has also demanded Ukrainian president Volodymyr Zelensky urge people to watch the 2005 movie Earthlings which details how certain industries abuse animals for profit.
In footage from the scene gunshots could be heard although it isn’t clear whether anyone has been injured.
Pictures show that some of the windows of the bus, which is parked near a theatre, have been shattered.
In another incident, a nearby police station where Interior Minister Arsen Avakov is discussing the hostage situation was shot at “several times”, local media reports.
A bullet hole can be seen in a window on the second floor. It is not clear if the shooting is connected to the bus siege.
Yuriy Kroshko, the head of the Ukrainian National Police’s department for the Volyn region, said the man was no longer taking the calls of negotiators at the scene.
In a Facebook post, Mr Kroshko said: “He posted his demands on Twitter. We are now monitoring the social network.
“He has not put forward any exact claims, only generalities regarding his dissatisfaction with the system, he does not say which system exactly.
“We are studying it, and we are trying to maintain negotiations. He used to pick up the phone but now he does not.”
TV footage shows empty streets cordoned off by officers in military uniform, police cars and an armoured personnel carrier.
Ukrainian President Zelenskiy said on Facebook the terrorist phoned authorities himself telling them he had taken the passengers hostage.
He said: “At 9:25am a citizen rang the police saying he took a bus with hostages.
“Shooting was heard, the bus is damaged.
“Every effort is being made to resolve the situation without casualties. I keep the course of events under personal control.”
Lutsk is in northwest Ukraine and is 250 miles west of capital Kiev.