The city's governor Vasip Sahin earlier revealed one police officer had died in the attack, which took place in the Reina nightclub, in the Ortakoy area, at about 01:30 local time (22:30 GMT). At least another 40 were injured.
One attacker was involved, the governor said, while CNN Turk reported he was dressed in a Santa Claus costume. The club was popular not only with Turks, but with foreigners as well, according to the BBC's Selin Girit in Istanbul.
She said it was unclear what had happened to the gunman at this stage - adding that some eyewitnesses spoke of there being not one but two attackers. There were reportedly as many as 700 people in the nightclub at the time of the attack, some of whom have jumped into the water to escape.