The incident happened at a home near 23rd Street and I Street.
Officials from the City of Merced say the suspect made claims of having a grenade.
Officers surrounded the home as they tried to get the suspect to come outside.
The suspect has since been taken into custody and there is no active threat to the neighborhood.
The bomb squad is still working to figure out if it is an active explosive.
Nearby residents were evacuated as a precaution, but have returned home.
Stay with Action News for the latest updates on this developing story.