Police were called to the St George Dance Centre on Derby Street near Kogarah railway station just before 8pm after receiving reports of an assault and a stabbing.

They allege the 54-year-old man sexually assaulted the seven-year-old girl in a toilet located in the same building as the dance studio.

They say a 46-year-old man who was helping look for the girl, after it was realised she was unaccounted for, confronted the alleged offender and a fight broke out, resulting in a stabbing.

The younger man was stabbed in the stomach and neck.

Witnesses came to his aid, tending to him and detaining the attacker until the police arrived.

On Friday morning, Superintendent Julian Griffiths described it as an "random, isolated" incident and praised the 46-year-old for his brave actions.

Police arrested the older man and took him to nearby St George Hospital. He has "facial swelling and bruising" and is in a stable condition, under police guard.

"[He] will not be in a position to assist police inquiries until early next week or when we receive medical advice to confirm he’s available to be spoken to," Superintendent Griffiths said.

The younger man is in the same hospital where he is now in a stable condition and receiving treatment for his stab wounds.

The girl is at Sydney Children’s Hospital under observation.

ACTiv Elite Performers, a performing arts school nearby, labelled the incident a "senseless and violent attack" and said their hearts went out to their friends at the dance centre.

"Lots of love to the families, staff and children affected and to the brave man who intervened," they said on Facebook.

Police have launched an investigation into the "concerning" matter.

"I think an incident like this will have everyone considering their own personal safety measures," Superintendent Griffiths said.

"We would be encouraging people to continue to show vigilance in public areas or shared facilities."