Aussie police run towards the Sydney Cafe on 15 December

A gunman was holding terrified hostages inside a Sydney cafe Monday with an Islamic flag displayed at the window, triggering a lockdown in an area home to government and corporate headquarters.

Three of the hostages however were seen running out of the besieged cafe.

The hostages appeared to come out of a side door which was being watched by heavily armed police, almost six hours after the standoff began. It is not clear how many people remain inside.

A square in the heart of the city was evacuated as hundreds of armed police surrounded the Lindt chocolate cafe, where a flag — black with white Arabic writing — was held to a window by customers.

It appears to be the shahada, or profession of faith in Islam, and says: “There is no God but Allah; Mohammed is the Messenger of Allah.”

This screengrab taken from the Australian Channel Seven broadcast shows presumed hostages holding up a flag with Arabic writing inside the cafe

New South Wales state police commissioner Andrew Scipione said it was not clear how many hostages were being held by the “armed offender” with officers still unsure who they were dealing with.

“We have not yet confirmed this is a terrorism related event,” he said.

Australia has been on high alert after the government raised concerns that citizens who have fought alongside jihadists in Iraq and Syria could return home radicalised and capable of carrying out attacks.

Prime Minister Tony Abbott convened a national security meeting to deal with the “disturbing” developments.

“We don’t yet know the motivation of the perpetrator, we don’t know whether this is politically motivated although obviously there are some indications that it could be,” he said.

“The whole point of politically motivated violence is to scare people out of being themselves.

“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,” he added.

Reports said anywhere between a dozen and 50 people were in the cafe. Several were seen with their arms in the air.

US President Barack Obama has been briefed about the crisis, a White House official said.

Patrick Byrne, a producer at Channel Seven whose newsroom is opposite the cafe, said staff at the television station watched the situation unfold.

“We raced to the window and saw the shocking and chilling sight of people putting their hands up against the panes of glass at the cafe,” he told the Australian Broadcasting Corporation.