He was arrested about an hour later after a tense stand-off with police. A witness has reported seeing someone being stretchered away from the Memorial Avenue scene as police and emergency crews swarmed the building.
A large exclusion zone has been established as bomb squad officers examine the man's vehicle. No police officers or members of the public were injured during the incident, according to NSW Police.
The alleged attacker has been taken to Sydney's Royal North Shore Hospital in a serious condition. The possible motivation for the alleged attack remains unclear.
"The circumstances regarding the incident are in the early stages of being confirmed and no further details are available at this time," NSW Police said in a statement. Merrylands has been the centre of several terror-related incidents and raids in the past two years.
Homes in the suburb were raided in September 2014 over a beheading plot and again 13 months later following the terror-linked shooting of police accountant Curtis Cheng in Parramatta.
Talal Alameddine, 22, of Merrylands, was charged with supplying the gun that 15-year-old Farhad Jabar used to kill Mr Cheng. Alameddine's home was one of two properties raided in December last year following reported Facebook threats made against the Merrylands Police Station.
NSW Police Assistant Commissioner Denis Clifford is expected to address the media later on Thursday night.