After the police moved in, one weeping woman was helped out by the officers and at least two other people were wheeled out on stretchers.
The dramatic scene unfolded shortly after the gunman was identified by local media as Iranian-born Man Haron Monis, who is facing charges including sexual assault and accessory to murder in separate cases.
Monis has long been on officials' radar. Last year, he was sentenced to 300 hours of community service for writing offensive letters to families of soldiers killed in Afghanistan. He was later charged with being an accessory to the murder of his ex-wife. Earlier this year, he was charged with the sexual assault of a woman in 2002. He has been out on bail on the charges.
"This is a one-off random individual. It's not a concerted terrorism event or act. It's a damaged goods individual who's done something outrageous," his former lawyer, Manny Conditsis, told Australian Broadcasting Corp.
"His ideology is just so strong and so powerful that it clouds his vision for common sense and objectiveness," Conditsis said.
Police storm cafe
An Associated Press photographer near the scene heard a loud bang and saw five or six hostages running out of the Lindt Chocolat Cafe in downtown Sydney early this morning.
Five other hostages ran out of the cafe earlier on Monday.
A man in a white shirt came out of the cafe with his arms raised. He dropped to the floor and was searched by police before being whisked away.
Meanwhile, a handful of hostages ran from the scene.
Seconds later, there were volleys of gunshots around the café.
Witnesses said several people had been carried out of the café on stretchers. Initial reports were that four people had been injured in the gun battle.
Sky News is reporting one of its journalists has seen an injured policeman being carried from the café and there is blood coming from his head.
Police reveal gunman is Iranian cleric
Police and media have named the gunman thought responsible for the Sydney siege as an unstable self-styled Iranian cleric who once sent poison letters to the family of Diggers who died in Afghanistan and has been charged over the murder of his wife.
Man Haron Monis, 49, a self-proclaimed sheik, became infamous after sending offensive letters to the grieving families of seven Australian soldiers killed in Afghanistan between 2007 and 2009.
Last year he was accused of assisting in the brutal killing of his ex-wife but was granted bail along with his current partner, who is accused of her murder.
Monis was charged with being an accessory before and after the fact to the murder of mother-of-two Noleen Hayson Pal.
His current partner, Amirah Droudis, 34, has been charged with the murder after 30-year-old Ms Pal was stabbed multiple times and set alight in a western Sydney unit block.
Recently he was charged with more than 50 counts of indecent and sexual assault from when he was a self-proclaimed "spiritual healer" in Sydney ten years ago.
He was born in Iran but came to Australia in 1996 and has been living in Sydney since.
The revelations made around 3am New Zealand Time came after an extraordinary day when a gunman, now believed to be Monis, seized hostages in a chocolate shop and cafe in central Sydney.
Five people have emerged from the Lindt Cafe in Martin Place but an unknown number remain inside.
They are being held by the gunman who has forced them to display an Islamic flag.
Police are still treating the incident as a hostage negotiation but have said they are responding to it as if it was a terrorist event and were prepared for anything that might eventuate.
Police: We want hostages out safely
Tonight, NSW Police Commissioner Andrew Scipione said: "Our only goal tonight and for as long as it takes is to get these people out safely."
He said police and security services were doing "absolutely all we can" and, speaking directly to the hostages, said they were doing "everything we can to set you free".
Mr Scipione would not say how many hostages remained inside the cafe and would not discuss police tactics to free them.
He repeated an earlier statement that the "best negotiators in the world" were working to get the hostages released.
The lights in the cafe were switched off, as night fell in the city.
Late on Monday 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.
There were claims that the hostage takers are also armed with a machete and may have explosives but this has not been confirmed by police.
Craig Stoker, a father of four from Eastlakes, told the Daily Telegraph newspaper he bumped into a man wearing a black T-shirt with white writing on it and a headband and carrying a blue bag.
"The bag bumped into me and there was something hard in it. I said 'watch where you are f**king going'.
"He turned round and said 'do you want me to shoot you too?.' I looked into his eyes and they were crazy. I was pretty freaked out."
Armed police patrol in Sydney. Photo / Getty Images
'I'm okay, can't talk'
The mother of a young man trapped inside the Lindt Cafe told radio station 2GB her son had texted her while being held hostage, the Daily Telegraph reported.
The woman said she received a text message from her son at 3pm that said: "Mum I'm in the Lindt cafe in Sydney."
She said her "heart stopped", the Daily Telegraph reported.
The woman said she then sent a text message back asking if he was okay.
He replied: "I'm okay mum, can't talk".
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.
"She took some of my old shoes and made me wash them and she gave them to a homeless guy. She just cares about everyone."
The woman had worked at the cafe for six months, he said.
Photo / Channel 7 / Twitter
New Zealand's Ministry of Foreign Affairs and Trade said it remained unclear whether any New Zealanders were involved in the siege as of about 9pm today.
"As this is an evolving situation, it is unclear at this point whether any New Zealanders are involved," the ministry said in a statement.
"New Zealanders in central Sydney are advised to follow the advice of local authorities and keep their family in NZ informed of their well-being."
Earlier this afternoon, New South Wales police commissioner Andrew Scipione said it was unknown how many hostages had been taken.
"This is a difficult day for everyone who's involved. I can confirm that we have an armed offender in premises holding an undisclosed number of hostages in the city marketplace area.
"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.
"We will work as long as we need to to bring this to an outcome. The officers that are there are well trained and professional, they know what they're doing, they have trained for this and I'm sure that they will get through and this will be an outcome that will be positive."
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.
Armed police evacuates office staff next to a cafe in the central business district of Sydney. Photo / Getty Images
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.
Lindt Australia CEO Steve Loane estimated there were up to 50 people being held.
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."
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City centre shut down
Armed police sealed off streets around the cafe and shut Martin Place station. Planes have been diverted away from the city centre.
Martin Place was shut down and scores of police surrounded the building after the alarm was raised about 9.45am (11.45am NZT).
An Islamic flag - black with white writing on it - was held up to the glass.
Firemen are seen at a barricade on Castlereigh Street in Sydney. Photo / Getty Images
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."
Armed police are seen outside a cafe in the central business district of Sydney. Photo / Getty Images
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.
"This is a very disturbing incident. I can understand the concerns and anxieties of the Australian people at a time like this, but our thoughts and prayers must above all go out to the individuals who are caught up in this.
"I can think of almost nothing more distressing, more terrifying than to be caught up in such a situation and our hearts go out to those people."
A man is surrounded by police and what appears to be a small gun underneath an officer's foot near the scene of a tense siege in Martin Place in Sydney. Photo / AAP
Automatic doors disabled
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."
Nathan Grivas, who works at Lindt Cafe, told the Guardian Australia that he arrived for work shortly after the siege started.
"It was already locked [when I got there]," he said. "I didn't get a good look at them. As soon as I saw the gun all I wanted to do was get out."
One of the hostages had looked at him, he said. He also saw one of his colleagues pressed up against a window.
"Luckily I didn't start at 9am today. Hopefully they'll be ok."
Another 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.
"Her arms seemed like they were getting so heavy. I saw her crying and wiping away tears."
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".
'It was just dumb luck'
Barrister Jeremy Gruzman was leaving his chambers in the building above the Lindt cafe as the siege started.
"There was a policeman in the foyer entrance yelling at me to get out," he said.
"I was just going out for coffee. It was just dumb luck that I got out."
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.
An armed policeman is seen on Philip St running from Martin Place in Sydney. Photo / Getty Images
Speaking to the Daily Telegraph, Sheila McLaughlin described how she was walking to work at her office next to the cafe when the hostages were being taken.
"I heard shouting coming from inside the cafe and then the doors slammed shut," she said.
"I was probably about 20 metres away when it happened and I'm still shaking because it could have been me."
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.
Police secure the scene near Lindt Cafe, Martin Place, Sydney. Photo / Getty Images
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 sniper sets up on Philip Street at Martin Place, Sydney. Photo / Getty Images
Man arrested near siege site
A man has been 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.
NSW Police are seen in the central business district of Sydney. Photo / AAP
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.
Messages of support
Prime Minister John Key says he is unable to confirm whether anyone involved in the central Sydney siege is from New Zealand.
In a statement this evening he said agencies were at this stage unable to confirm the nationalities of those involved, including whether any New Zealanders were caught up in the siege.
Mr Key said authorities in New Zealand and Australia would continue to stay in close contact as events unfolded and facts became clearer.
The New Zealand Government was monitoring the situation in Sydney as events continued to unfold, he said.
Mr Key has sent a message of support to Mr 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.
Armed police patrol the vicinity at Lindt Cafe, Martin Place. Photo / Getty Images
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".
"Police are assuming the gunmen could be carrying explosives in a backpack but this is still unconfirmed," Joel McKay, who appears to be live tweeting the incident, posted.
Mia Burns, a news producer for Seven, tweeted: 'Hostages against the glass of Lindt café. Some are shaking and sobbing.'
Seven Network staff are sheltering inside the media company's Martin Place headquarters.
The Morning Show co-host Kylie Gillies said police had locked down the Seven building at 52 Martin Place in Sydney's CBD, right across from the Lindt Chocolat Cafe.
NSW Public Order and Riot Squad Police are seen outside the Lindt cafe in the central business district of Sydney. Photo / AAP
She was sheltering with about 40 other Seven staff members.
"It's quite tense," Ms Gillies said.
"Our first thoughts, of course, are with the customers and staff at Lindt, and their families.
"We can see them and we can see the fear in their eyes."
She said Martin Place was now cordoned off and "eerily empty" of pedestrians.
"There's a heavy police presence," she said.
"We're all praying for a peaceful outcome."
Evacuees in Hyde Park, Sydney. Photo / AAP
Ms Gillies told AAP she saw the situation unfold "live on air" from about 9.45am.
"Marlisa (Punzalan) from XFactor was on live on our show and Larry (Emdur) and I turned around and looked out the window and there were all these cops running around," she said.
"Larry and I broadcast for the next 40 minutes as the events unfolded.
"It was so scary to see the hostages standing at the window with their arms up to the glass."
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.
'Shocking and chilling sight'
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 against 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.
Police cars and evacuees are seen in Hyde Park due to a siege under way in Martin Place, Sydney. Photo / AAP
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."
NSW Public Order and Riot Squad Police are seen outside the Lindt cafe in the central business district of Sydney. Photo / AAP
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".
The incident began just hours after a 25-year-old suspect was arrested in a terror raid in Sydney.
NSW Public Order and Riot Squad Police are seen outside the Lindt cafe in the central business district of Sydney. Photo / AAP
Watch a live stream from the scene here:
- Daily Mail / AAP / NZME. News Service
