A gunman who started a shooting spree at a restaurant in southern Montenegro killed a total of 12 people, including two children, a prosecutor said on Thursday.

"Twelve people were killed, of whom two were children," prosecutor Andrijana Nastic told reporters in Cetinje, raising the previous toll of at least 10 from Wednesday's attack.

The gunman died after shooting himself in the head, police said early on Thursday.

The killing spree started around 5:30 pm local time (1630 GMT) on Wednesday, in Bajice village near the southern town of Cetinje, according to police.

The victims were killed at five different locations, with the first four in the restaurant, the prosecutor said.

"Each location was inspected and evidence was taken.

"Prosecutor and police actions are ongoing, to determine the circumstances under which the event took place," she said.

Four people were also seriously wounded and transported to a hospital in the capital, Podgorica.

The lives of three of them were still in danger, Health Minister Vojislav Simun said on Thursday.

The police ruled out a "showdown between organised criminal groups".

They said firearms used were illegal.

The government declared three days of national mourning from Thursday.

Mass shootings are rare in the tiny Balkan nation.