Sydney siege: Hostages held in Lindt cafe

The Lindt cafe in the central business district is surrounded by armed police.

Five people have been seen running from the building. It is not clear how many hostages remain inside. Police say they have made contact with the gunman.

PM Tony Abbott described the attack as "terrifying" and said it could be politically motivated. A black Islamic flag has been displayed at the window.

About six hours into the siege, three people were seen running from the building housing the cafe in Martin Place. Two more people followed about an hour later. The circumstances of their exit are not clear.

"We will work with these people to figure out more information. We do not have information to suggest that anyone is harmed at this stage," said New South Wales Police Deputy Commissioner Catherine Burn after the first three came out.

Police negotiators were now in contact with gunman, she added.

Mr Abbott said: "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 these people," he said.

Speaking in Canberra, Mr Abbott added: "Australia is a peaceful, open and generous society - nothing should ever change that and that's why I would urge all Australians today to go about their business as usual."

New South Wales Police Commissioner Andrew Scipione said the situation was not being treated as a terror incident, but confirmed there was "an armed offender in the premises holding an undisclosed number of hostages".

He said the situation was contained in Martin Place - dismissing various reports of other incidents around the city - and that police were "doing all we can to bring this to a peaceful outcome".