Bangladeshi police have stormed a Dhaka restaurant to free 20 hostages, including several foreigners, trapped inside after gunmen launched an attack on the upscale eatery late on Friday night.

‘Our commandos have stormed into the restaurant. Intense gunfighting on,’ Mizanur Rahman Bhuiyan, a deputy director at the Rapid Action Battalion force, said on Saturday.

A security official has told AFP that five Bangladeshi hotages were rescued ‘unharmed’ after the operation, with police also saying one Japanese hostage had also escaped unharmed.

Gunmen stormed the building early on Saturday, killing at least two policemen.

The Australian Department of Foreign Affairs and Trade says it is not aware of any Australian nationals involved and the Australian Government has condemned the attack.

Gowher Rizvi, an adviser to Bangladesh Prime Minister Sheikh Hasina, had told Reuters security forces were trying to negotiate an end to the crisis, failing which they would launch an offensive to end the siege.

Police said eight to nine gunmen attacked the Holey Artisan restaurant in the Gulshan district of Dhaka that is popular with expatriates.

The assailants, believed to be carrying assault rifles and grenades, exchanged sporadic gunfire with police outside for several hours after the attack, which began around 9pm local time on Friday.

Islamic State has claimed responsibility for the attack and said 24 people had died. Bangladesh police denied that, saying two police officers had been killed and at least 15 people wounded.

Italian and Indian nationals were among the hostages, said a duty officer at the Rapid Action Battalion’s (RAB) control room.

Italy’s Ambassador to Bangladesh, Mario Palma, told Italian state TV seven Italians were among the hostages.

‘It is a suicide attack. They want to carry out a powerful and bloody operation and there is no room for negotiation,’ Palma said.

The hostage crisis marks an escalation from a recent spate of murders claimed by Islamic State and al Qaeda on liberals, gays, foreigners and religious minorities, and could deal a major blow to the country’s vital $25 billion garment sector.

Last year several Western retailers temporarily halted visits to Dhaka following the killing of two foreigners.

Bangladesh has experienced a spike in militant violence in the past 18 months. Attacks have tended to be on individuals, often using machetes, and the raid on the restaurant was a rare instance of a more co-ordinated operation.

Earlier on Friday a Hindu priest was hacked to death at a temple in Jhinaidah district, 300km southwest of Dhaka.

Islamic State and al Qaeda have claimed responsibility for many of the killings, although local authorities say there are no operational links between Bangladeshi militants and international jihadi networks.

Bangladesh security officials say two local militant groups, Ansar-al-Islam and Jamaat-ul-Mujahideen, are behind the violence. Ansar pledges allegiance to al Qaeda, while Jamaat-ul-Mujahideen claims it represents Islamic State.

‘The bottom line is Bangladesh has plenty of local, (often unaffiliated), militants and radicals happy to stage attacks in ISIS’s name,’ said Michael Kugelman, South Asia associate at The Wilson Centre in Washington DC, using an acronym commonly used for Islamic State.

He added that Islamic State had claimed more attacks in Bangladesh than in Pakistan or Afghanistan.

Rizvi, the adviser to the prime minister, said the hostage crisis began when local security guards in the diplomatic enclave noticed several gunmen outside a medical centre.

When the guards approached, the gunmen had run into the restaurant, which was packed with people waiting for tables, he added.

AAP

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Bangladeshi police have stormed a Dhaka restaurant to free 20 hostages, including several foreigners, trapped inside after gunmen launched an attack on the upscale eatery late on Friday night. 'Our commandos have stormed into the restaurant. Intense gunfighting on,' Mizanur Rahman Bhuiyan, a deputy director at the Rapid Action Battalion...