The incident happened at around 12:30am this morning (Sunday December 23) outside the entrance to the bus station in Cable Street.
A Kia Ceed was in a collision with a pedestrian, a 32 year old man from Morecambe.
He suffered extensive head injuries and died at the scene.
Officers are asking anyone who may have witnessed the incident to come forward.
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Sgt Phil Baxendale said: “This is a tragic and extremely sad incident where a family have lost a loved one just before Christmas.
"My thoughts are with them at this most difficult time. They are being supported by specially trained officers.
“We know that Lancaster was busy at that time with revellers out celebrating the festivities and so I would appeal to anyone who may have seen or heard anything to make contact with us at their earliest opportunity as we need to get to the bottom of what exactly happened.”
Please email [email protected] or call 101 quoting incident reference 0042 of today (December 23rd)
The man's name has not yet been released.
The area near the accident was closed to traffic for investigations earlier today.