Terror in Martin Place | POLL

Mr Abbott chaired a meeting of the National Security Committee of cabinet, briefed by NSW Premier Mike Baird and NSW Police Commissioner Andrew Scipione.

“This is a very disturbing incident. It is profoundly shocking that innocent people should be held hostage by an armed person claiming political motivation,” he said in a recorded update.

Five people have fled from the Lindt Chocolat Cafe, but the gunman was still holding up to 25 hostages and making bomb threats in a terrifying siege drama that has shut down the heart of the city.

Negotiators have been in contact with the man, who is reportedly armed with a shotgun and forced two women to hold a black Islamic flag up to the window of the cafe after taking control of the Martin Place cafe yesterday morning.

Police are yet to discover who the man is or what is motivating his actions.

Late yesterday Network Ten reported two women held inside the cafe had relayed demands from the gunman directly to the network.

Read what the Mercury has to say here

The gunman, who calls himself “the brother”, reportedly wanted 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.

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.

It is not clear whether the man released the five people or they escaped.

Hunter Muslim condemns gunman's actions

Three men ran from the Lindt Chocolat 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.

Mr Scipione said yesterday afternoon police had not confirmed the siege was a terrorism-related event but, could not rule that out.