This paper describes a near-UV/VIS study of a pyrene:H_2O interstellar ice analogue at 10 K using optical absorption spectroscopy. A new experimental approach makes it possible to irradiate the sample with vacuum ultraviolet (VUV) light (7-10.5 eV) while simultaneously recording spectra in the 240-1000 nm range with subsecond time resolution. Both spectroscopic and dynamic information on VUV processed ices are obtained in this way. This provides a powerful tool to follow, in-situ and in real time, the photophysical and photochemical processes induced by VUV irradiation of a polycyclic aromatic hydrocarbon containing inter- and circumstellar ice analogue. Results on the VUV photolysis of a prototype sample - strongly diluted pyrene in H_2O ice - are presented. In addition to the pyrene cation (Py+), other products - hydroxypyrene (PyOH), possibly hydroxypyrene cation (PyOH+), and pyrene/pyrenolate anion (Py-/PyO-) - are observed. It is found that the charge remains localized in the ice, also after the VUV irradiation is stopped. The astrochemical implications and observational constraints are discussed.