Three Dead After Police Storm Sydney Cafe

Three people have been killed as heavily-armed police stormed a Sydney cafe where a gunman took 17 people hostage, forcing the city's central business district into lockdown for 16 hours.

Hostage-taker Man Haron Monis was shot dead when specialist officers threw flash grenades into the Lindt cafe in Martin Place around 2.10am, then opened fire inside the premises.

New South Wales Police say the 50-year-old Iranian refugee - who was facing charges in Australia including accessory to murder and sexual assault - was confirmed dead after being taken to hospital.

Two of the hostages - a 34-year-old man and a 38-year-old woman - were also killed as the 16-hour siege operation came to an end.

Speaking at a news conference in Canberra, Australian Prime Minister Tony Abbott said the gunman had an infatuation with extremism.

"As the siege unfolded yesterday, he sought to cloak his actions with the symbolism of the ISIL death cult," Mr Abbott said.

Mr Abbott earlier praised the actions of police and offered his condolences to the families of the two hostages who died.

"Our thoughts and prayers are with the families of the two deceased hostages, the wounded and the other hostages," he said.

"I commend the courage and professionalism of the New South Wales Police and other emergency services involved."

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NSW Police Commissioner Andrew Scipione said the incident should not change the way Australians live their lives.

"This was an isolated incident. Do not let this sort of incident bring about any loss of confidence about working or living in our city," he said.

"This should never destroy or change our way of life. This will not change our way of life, and the things we hold dear in this country.

"Right now, I ask the community to come together."

In dramatic scenes at the Lindt cafe, a group of panicked hostages ran from the building into the arms of waiting police in the early hours of Tuesday morning local time.

Specialist police then swooped on the gunman, who was armed with a pump-action shotgun.

A series of loud explosions were heard at the scene before glass shattered onto the pavement from a nearby window.

A NSW Police statement confirmed two women were taken to hospital with non-life threatening injuries after the end of the siege.

A male police officer was also taken to hospital suffering a wound to his face from gunshot pellets.

Another woman is undergoing treatment in hospital for a gunshot wound to her shoulder, while a 35-year-old woman was taken to hospital as a precaution.

NSW Premier Mike Baird described the incident as "a vicious, horrendous attack in the heart of our city".

Alarms rang in the street as police officers and ambulance crews were sent into the cafe just after 2am, where the gunman held hostages over a 16-hour period.

Specialist officers threw flash grenades through an entrance to the cafe before entering the premises with their guns raised.

Loud bangs and flashes were seen through the windows of the cafe.

The gunman, an Iranian refugee, was known to Australian law enforcement authorities .

The self-styled Sheikh was facing charges including being an accessory to murder and sexual assault.

The siege began around 9.45am local time when Monis entered the cafe in Martin Place carrying a shotgun.

Hostages were seen holding a black flag with white Arabic text similar to those displayed by the Islamic State group. Footage also showed Monis apparently using one hostage as a human shield.

Up to 100 armed police gathered at the scene while negotiators spoke to the gunman.