Sydney hostage situation sparks fears of Islamist-linked attack

Snipers and a Swat team have taken up positions around the cafe and police helicopters are flowing overhead.

A female hostage stands by the front entrance of the cafe as she turns the lights off in the Sydney central business district on 15 December, 2014. Picture: AFP.

SYDNEY - Australian police say they know of one armed assailant involved in the hostage drama in the heart of Sydney's financial district but there could be more.

Police, including paramilitary officers, have cordoned off several blocks around the Lindt cafe in Martin Place as negotiators try to defuse one of the biggest security scares in the country for decades.

Snipers and a Swat team have taken up positions around the cafe and police helicopters are flowing overhead.

The siege is taking place close to the Sydney Opera House, Sydney Town Hall, Harbour Bridge and other prominent landmarks.

It's also directly next door to the Reserve Bank of Australia and major television networks.

At least five hostages have escaped since the mid-morning siege began.

One of the five hostages that managed to get out of the cafe is now being treated in hospital.

The exclusion zone around the hostage scene continues to widen, but the premier of New South Wales, Mike Baird, says police are on top of the situation and are doing everything that needs to be done.

About 15 hostages could still be seen inside the cafe, said Chris Reason, a reporter at Channel Seven, whose office is opposite the cafe.

"From inside Martin Place newsroom we can see the gunman is rotating hostages, forcing them to stand against windows, sometimes two hours at a time."

Prime Minister Tony Abbott, who has warned of militant plans to strike Australian targets, said there were indications the hostage-taking was politically motivated.

"This is a very disturbing incident. I can understand the concerns and anxieties of the Australian people," Abbott told reporters in Canberra.

Australia, a staunch ally of the United States and its escalating action against the Islamic State in Syria and Iraq, is on high alert for attacks by home-grown militants returning from fighting in the Middle East.

"We have moved to a footing that would be consistent with a terrorist event," Andrew Scipione, police commissioner for the state of New South Wales, told reporters.

News footage showed hostages holding up a black and white flag displaying the Shahada - a testament to the faith of Muslims. The flag has been popular among Sunni Islamist militant groups such as Islamic State and al Qaeda.

The incident forced the evacuation of nearby buildings and sent shockwaves around a country where many people have started to turn their attention to the Christmas holiday following earlier security scares.

In September, anti-terrorism police said they had thwarted an imminent threat to behead a random member of the public and days later, a teenager in the city of Melbourne was shot dead after attacking two anti-terrorism officers with a knife.

BANKS AND SHOPS CLOSE

In the biggest security operation in Sydney since a bombing at the Hilton Hotel killed two people in 1978, major banks closed their offices in the central business district and people were told to avoid the area, leaving large parts of the area all but deserted by mid-afternoon.

Muslim leaders urged calm, with the Australian National Imams Council condemning "this criminal act unequivocally" in a joint statement with the Grand Mufti of Australia.

Traders in currency markets said the hostage news may have contributed to a dip in the Australian dollar, which was already under pressure from global risk aversion as oil prices fell anew.

Ray Hadley, a radio disc jockey, said he had been contacted by a hostage and could hear the suspected gunman issuing orders in the background. Police declined to comment.

Network 10 reported that two female hostages had called with claims from the gunman that two bombs were planted elsewhere in the city. Social media posts by alleged hostages claimed the gunman wanted to speak directly with Prime Minister Abbott.

Police said they were aware of media reports but said the "situation is contained in one area".

Concerns about an attack in Australia by Islamists have been growing for more than a year, with the security agency raising its national terrorism public alert to "high" in September.

That month, a spokesman for the Islamic State urged supporters in Western nations, including Australia, to attack civilians or military personnel at home.

[LISTEN: AUSTRALIAN CORRESPONDENT ROB KALDOR ON THE HOSTAGE SITUATION