The Fire Service has been at the Hotel Grand Chancellor on Hobson St since 11.10am.
They removed a person from the hotel room where the smell was coming from, but that person has died, St John ambulance said.
Police have closed two lanes of Hobson St and have advised motorists to stay away from the area.
Fire Service spokeswoman Dallas Ramsay said she was unsure whether the entire hotel had been evacuated or just one floor.
There were now 12 Fire Service vehicles at the scene and a decontamination zone had been set up.
Men in white suits had been seen going in and out of the ambulance parked out front.