Six people were killed and another was critically injured as he fired dozens of rounds, police said. Outside, he fatally shot himself when confronted by police.
Police said it appeared to be Seattle's worst mass killing since 1983's Wah Mee massacre, when 13 died in an attack at a gambling club.
"It's one of the largest crime scenes the city has ever had," Police Chief Gil Kerlikowske said.
The victims many with their faces painted and hair dyed for the zombie-themed rave were in their late teens and early 20s, police said. Police said they didn't know the motive and Mr Kerlikowske said there had not been any fights or arguments at the party.
Officers found three dead in the living room, one at the front door and another on the porch steps. One victim died at Harborview Medical Centre, where another was in extremely critical condition and the third was stable, the nursing supervisor said.
About 20 people had gathered at the two-storey rental house after a Friday night rave called "Better Off Undead" in the Capitol Hill neighbourhood. Some of the guests were "made up to look as if they were dead", Mr Kerlikowske said.
The black-garbed shooter was described as being in his late 20s. Mr Kerlikowske told reporters the man was "quiet and humble", had come to the area five years ago from out of state and had little involvement with police. He did not elaborate except to say the man's record was nonviolent.
Police had a tentative identification, the chief said, but he didn't release it. He said the shooter had been invited to the party.
The man left the party around 7am (local time) Saturday, went to his black Dodge pickup truck and turned around, police said.
As the gunman walked the half block back to the house, he spray-painted the word "NOW" in orange twice on the sidewalk and once on the steps of a neighbour's home, police said.
He forced his way back inside the house as he fired, police said. Unable to enter an upstairs bathroom where a young couple were hiding, he fired through the door. They were unharmed.
An officer in the neighbourhood heard the shots and arrived to find a wounded victim staggering out of the house, Mr Kerlikowske said. The officer confronted the man with a shotgun but got no further than "Drop your ..." before the man put the barrel in his mouth and pulled the trigger, the chief said.
The shooter also had a handgun, police said, but primarily used the 12-gauge pistol-grip shotgun. In his truck, police found an assault rife and multiple 'banana clips' carrying 30 bullets each.
Police said they did not know if drugs or alcohol were a factor, though Mr Kerlikowske said marijuana and alcohol were found in the house.
Police also said there could have been more victims but officers responded to the scene less than two minutes after the initial reports.
None of the victims had been publicly identified by officials, but relatives of Jeremy Martin, 26, and Christopher Williamson, 21, confirmed that they were among the dead.
Mr Martin was a resident of the house where the shooting occurred.
Mr Williamson's mother, Sandra Williamson, said she was informed of her son's death by the King County Medical Examiner's office Saturday night.
Nancie Thorne told The Seattle Times that her 15-year-old daughter, Suzanne, was in the house when the man opened fire. She hadn't heard if her daughter survived.
"It's the worst phone call a mum can get," Ms Thorne said, crying. "She shouldn't have gone to the rave. I've never approved of those things. ... I just hope to God she's alive. And if she is, she's grounded for life."