Five people have fled a cafe in central Sydney but a gunman is still holding up to 25 hostages and making bomb threats in a terrifying siege drama that has shut down the heart of the city.
Negotiators have been in contact with the man, who is reportedly armed with a shotgun and forced two women to hold a black Islamic flag up to the window of the cafe after taking control of the Martin Place cafe this morning.
Police are yet to discover who the man is or what is motivating his actions.
A short time ago, the lights in the cafe were switched off, as night falls in the city.
Network Ten reported two women held inside the cafe had relayed demands from the gunman directly to the network.
The gunman, who calls himself "the brother", had reportedly demanded a flag of terrorist organisation Islamic State be delivered to the cafe and wants to speak with Prime Minister Tony Abbott.
The women reportedly said the man claimed to have four bombs - two in the cafe and two at other locations in the city.
Network Ten said the two women inside the cafe were "hysterical" and believed they were in "immediate danger".
Large numbers of heavily armed and armoured police are holding positions outside the cafe where a morning coffee turned into a terrifying ordeal for patrons at around 9.45am (11.45am NZT).
It is not clear whether the man released the five people or they escaped.
Three men ran from the Lindt chocolate cafe at around 3.30pm, two running from the front door and one scrambling through a fire exit, to take shelter behind a group of armed police.
Two women, both with fear visible on their faces, sprinted to waiting police about 90 minutes later.
7News journalist Chris Reason tweeted that from inside the Martin Place newsroom they could see the gunman rotating hostages and forcing them to stand against windows, for up to two hours at a time.
A short time ago, he said all the hostages were huddled at one end of the Lindt Cafe, with one covering the window at that end with an apron.
"From inside Martin Place newsroom, we've counted around 15 hostages - not 50 - mix of women, men, young, old - but no children.
"We can see the faces of hostages - pained, strained, eyes red and raw. One young am with head in hands."
New South Wales Police Deputy Commissioner Catherine Burn confirmed that the first three escapees were being checked for any injuries before they spoke to police.
"We do not have any information that suggests that anybody is harmed at this stage," she said.
Ms Burn said the number of hostages in the Martin Place cafe was not clear but it was fewer than 30.
Morning coffee stop horror
The development came hours after a gunman entered the Lindt Chocolat Cafe in Martin Place, a plaza in the heart of the city's financial and shopping district that is packed with holiday shoppers this time of year.
Many of those inside the cafe would have been taken hostage as they stopped in for their morning coffees. Witnesses described how a man wearing a headband covered in Arabic walked into the Lindt cafe in Martin Place and produced a shotgun from a blue bag at around 9.45am.
Shortly afterwards hostages were seen with their hands pressed against the windows holding up the Shahada flag belonging to the extremist group Jabhat al-Nusra, which is fighting the Assad government in Syria.
Broadcaster Ray Hadley from radio station 2GB said he had received phone calls from hostages inside the Lindt cafe.
"I can hear the person in the background issuing instructions to the young man talking to me," he said.
"One of his colleagues is quite distressed and quite ill and obviously needs some sort of medical attention."
Hadley said he was not in a position to respond to any instructions, and instead told the offender to deal with negotiators and police.
"The media can't play a role in negotiating with people reporting to be from Islamic State holding hostages.
"It is the job of authorities to solve this problem."
He said they wanted the media to say things they "simply can't say".
"When you get summoned outside you get exasperated in trying to give advice to a young bloke who is being held hostage, you don't know what to say to him without appearing cruel or unkind."
Handley asked that any unwell or distressed people be let go.
"Let them go. You don't need all those hostages."
Terrifying photo of hostages in Martin Place in Sydney, being held by men waving an ISIS flag pic.twitter.com/6ozBRQVNlG
— Tom Steinfort (@tomsteinfort) December 14, 2014
New South Wales police commissioner Andrew Scipione said it was unknown how many hostages had been taken and police had yet to make contact with the armed offender.
"Police have been in attendance and have controlled the situation from very early this morning, shortly after it was advised.
"We are at this stage continuing to secure and make sure we're doing all that we can to bring this to a peaceful outcome, we want this matter resolved peacefully and we will do all we need to to ensure that.''
A number of other incidents to occur in Sydney today were not connected with the hostage event, Mr Scipione said.
"The city is still operating and will continue to operate until we need to change that. At this stage, it is well contained. Our thoughts, our prayers go out to those who are caught up in this. We are doing absolutely everything we can to resolve it."
The Sydney Opera House, which was earlier evacuated, has been cleared by police, the Guardian Australia reported.
Police were not currently responding to any incidents at the famous Sydney landmark, a spokeswoman told the newspaper. However, it is still sealed off.
Some contractors and performers have been allowed back inside.
It is still not clear why it was evacuated.
The cafe incident had yet to be tagged as a terrorist attack, but that had not been ruled out, Mr Scipione said. There was at least one offender, he said.
Armed police have sealed off streets around the cafe and Martin Place station is shut. Planes have been diverted away from the city centre.
Lindt Australia CEO Steve Loane estimates there are up to 50 people being held.
"The best information is that there's like 40 or 50 people in there, customers and employees included. That's a rough figure," he told News Corp Australia.
Lindt Chocolate Cafe Australia has released a statement on the siege, saying it has closed all its cafes in Australia because of the "serious" situation.
"We would like to thank everyone for their thoughts and kind support over the current situation at the Lindt Chocolate Cafe at Martin Place," the statement said.
"We are deeply concerned over this serious incident and our thoughts and prayers are with the staff and customers involved and all their friends and families.
"The matter is being dealt with by the authorities and we are waiting for any updates from them."
There are reports a hostage has managed to tweet from inside the Lindt Cafe, 9 News said. The tweet reportedly urges police to be cautious.
It comes as the exclusion zone around Martin Place was extended. Hundreds of police are at the scene.
The fiancee of one of the hostages has spoken to the Guardian Australia, which has chosen not to name the man or his partner.
"She's the sweetest person ever, who thinks about everyone," the man said.
The woman had worked at the cafe for six months, he said.
Reporter on Scene: Gunman using hostage as Human Shield #sydneysiege pic.twitter.com/ujGNj2AZNd
— Peter Doherty (@PeterDoherty7) December 15, 2014
There are reports the gunman has claimed four explosive devices are located around Sydney, 9 News reported.
A security response was underway and police were calling for calm.
The incident began just hours after a 25-year-old suspect was arrested in a terror raid in Sydney.
Martin Place has been shut down and scores of police are surrounding the building after the alarm was raised about 9.45am (11.45am NZT).
An Islamic flag - black with white writing on it - has been held up to the glass.
Australian Prime Minister Tony Abbott told a press conference this afternoon that it was unknown if the hostage situation was politically motivated "although obviously there are some indications that it could be".
"We have to appreciate that even in a society such as ours, there are people who would wish to do us harm. That's why we have police and security organisations of the utmost professionalism that are ready and able to respond to a whole range of situations and contingencies, including the situation that we are now seeing in Sydney.
"The whole point of politically motivated violence is to scare people out of being themselves. Australia is a peaceful, open, generous society - nothing should ever change that and that's why I would urge all Australians today to go about their business as usual."
Australia's National Security Committee of the Cabinet had been briefed on the incident, Mr Abbott said.
"This is an unfolding situation and as the situation unfolds there will be operational updates provided by the New South Wales police."
Australia's ordinary business of government would continue in spite of the hostage situation, he said.
The Seven Network newsroom, which is in a building opposite the cafe, has also been evacuated.
Journalist Chris Kenny, who was in the shop about 20 minutes before the siege began, said he understood the automatic glass sliding doors had been disabled.
"I did speak to a couple of people who saw a bit more of this unfold than I did," he said.
"One woman said she tried to go into the shop just after I came out with my takeaway coffee but the doors wouldn't open.
"So obviously whoever is doing this has disabled the automatic glass sliding doors to stop anyone else going in and she said immediately she could see there was a weapon.
"She mentioned it being taken out of a blue bag and people were straight away asked to put up their hands."
A Lindt cafe employee, who was due to start her shift just an hour after the Sydney hostage drama unfolded, says she's "shaking with fear".
Kathryn Chee, a chocolatier at Lindt's Martin Place cafe says she meant to turn up early for her 11am shift because the business had been so busy in the lead up to Christmas.
"It shakes me to the bone," Ms Chee told ABC TV.
She says her colleagues who are now hostages are "people who I hold like another family".
"It's good I'm not there but I wish I could be there for them.
"That could be me standing there."
Ms Chee says the young woman seen in footage holding an Islamic flag pressed against the window had "a look of sheer horror on her face".
"She'd be beside herself," she said.
She says the woman is a thoughtful colleague who bakes treats for people's birthdays.
Ms Chee says the male hostage seen in the TV footage is a funny guy who jokes with the customers.
"He's always very active ... I've never seen him stay that still for that amount of time."
Ms Chee has posted on her Facebook that she is "safe at home but still shaking with fear as my friends are against the windows".
Janice Johnson saw the drama unfold from a cafe opposite the Lindt building.
She told the newspaper: "There was an Islamic State flag in the window and the people in the cafe window had their eyes closed and some had their heads bowed.
"Police were sneaking up to the door with their guns drawn.
"We were told to get to the back of the room and were then ordered to evacuate."
She was warned by police about a possible explosion, she said.
Jihee Yoon, 27, was working in a building on Martin Place a block away from the Lindt cafe when she got an email from a friend saying there were reports of a gunman on the loose.
Her building was quickly put on lockdown.
"We were all at the windows looking out and we could see the police," she said.
"It was the unknown, no one knew what has going on. It was terrifying."
She said some people at work were in favour of leaving and others wanted to stay put.
"It was hard because some people were thinking of their children in day-care in the city," she said.
When reports came in of the chance of an explosive device present, the decision was made to evacuate.
The 25 minute walk home was scary, she said.
"Some of the people on the streets didn't know what had happened. There were tourists on Martin Place pushing prams, so we were just trying to tell everyone we could to get out of the area."
She said the whole situation had been terrifying.
A man was handcuffed 200m from the Martin Place cafe siege in central Sydney.
The man was placed in the back of a paddy wagon near the Pitt Street intersection with Martin Place and driven off shortly after midday.
It's unclear whether the gun was a replica or not. The contents of the disoriented man's bag were strewn on the ground.
Reports of raids at homes in Lakemba were false, the Guardian Australia reported, following claims by a local radio host. The area has a large Muslim population.
The newspaper cited sources who said there were no raids underway.
"About 20 police are touring the Lakemba mosque as part of a police introduction day, which may have been the source of those reports," it said.
The Cahill Expressway had been closed to traffic as it was close to Circular Quay, but the Sydney Harbour Tunnel and the Sydney Harbour Bridge remained open, 9 News reported.
New Zealand Prime Minister John Key has sent a message of support to Australian Prime Minister Tony Abbott by text.
A spokeswoman for Mr Key said the national security system had been activated. "Individual agencies will be assessing what they need to know and do," she said.
The White House has confirmed US President Barack Obama has been briefed on the Martin's Place siege, The Daily Telegraph reported.
The US Consulate in Sydney was among the buildings evacuated after the siege began. An emergency warning has reportedly been issued to American citizens in Australia to "maintain a high level of vigilance", the newspaper reported.
There are reports that the police have been taken inside the Channel 7 building and "are most likely in surrounding building to gain a better POV".
The lockdown means Seven's coverage of the siege is being telecast via Melbourne.
A Seven representative says one of its news reporters, who is an expert in terrorism, has identified the flag being held up in the window.
"One of the reporters believed it was an al-Qaeda flag," he said.
Seven Network producer Patrick Byrne said staff watched the drama out their windows.
"Our editorial meeting was interrupted this morning when we heard reports that police were in Martin Place carrying shotguns," he said in an interview carried on the ABC.
"We all raced to the window and there we saw the shocking and chilling sight of people putting their hands up agains the panes of glass at the cafe."
Other buildings in Martin Place, including the nearby Westpac building, have been cleared.
Workers in government buildings in Martin Place have been told to stay away from windows, The Daily Telegraph reported, while all traffic in and out of the area has been stopped.
Some workplaces in central Sydney are sending workers home for the day, 9 News reports.
It said that NSW Court sheriffs officers were under police instructions to divert pedestrians on Elizabeth St, and the Sydney city courts were also closed.
Martin Place has several prominent buildings, including Premier Mike Baird's office, the Reserve Bank of Australia, Westpac Bank and the Commonwealth Bank headquarters as well as the US embassy and Network Seven.
The Supreme Court, Sydney Hospital and NSW parliament are also nearby.
Mobile phone signals in the area around Martin Place had been jammed, a Guardian Australia reporter said.
Qantas is diverting its planes away from central Sydney to free up space for authorities dealing with the siege in a city cafe.
A Qantas spokeswoman says its flights do not typically pass directly over the CBD, but planes are being diverted from flying over nearby suburbs to leave the way clear for police helicopters and other aircraft. "We're giving that area a wide berth," she said.
The move is expected to have no impact on the airline's flight schedule.
A spokesman for Virgin Australia says its flights are also unaffected at this stage.
"We are monitoring the situation closely. At this stage our operations are unaffected however we will continue to liaise with authorities and security experts," he said in a statement.
A spokesman for deputy prime minister Warren Truss has said the airspace above the CBD remains open although some flights have been re-routed.
"The airspace over the Sydney CBD is not in shut down. There are choppers in the air and air traffic is being rerouted according. At this stage no impact on the air traffic network."
Ride hailing service Uber is now offering free rides in central Sydney, following an earlier surge in demand which saw fares rise to an A$100 ($106) minimum rate to leave the city.
"Uber Sydney trips from CBD will be free for riders. Higher rates are still in place to encourage drivers to get into the CBD," the company tweeted.
New South Wales Premier Mike Baird has released a statement saying his "thoughts and prayers" are with those affected.
"I have spoken to the Police Commissioner Andrew Scipione and have full confidence the NSW Police are working effectively to resolve the situation," he said.
Grainy images of what appears to be the gunman wearing a black bandanna with white Arabic script have been deciphered.
First Look Media's Andy Carvin asked people on Twitter to help translate the writing, and said the consensus was: "We sacrifice ourselves for you, O Mohamed."
"Consensus translation of the headband is "We sacrifice ourselves for you, O Mohamed." Caveat: photo blurry, text incomplete. #sydneysiege," he tweeted.
Sky reports that the flag held up in the cafe window says: "There is no God other than Allah".
Twitter user Mo Elleissy said the writing on the flag translated as "no god worthy of worship except Allah and Muhammad is his messenger".
