Central Sydney under Siege

Terrified hostages cowered inside a cafe in central Sydney Monday with an Islamic flag displayed against a window, sparking a security lockdown in an area home to government and corporate headquarters.

Martin Place was evacuated as scores of armed police surrounded the Lindt chocolate cafe, with TV pictures showing a flag - black with white Arabic writing - held to a window by customers.

Policemen take positions at Martin Place near Lindt cafe, where hostages are being held

Adding to the unfolding drama, the nearby Sydney Opera House was also cleared by police, apparently over a suspicious package. It was not clear if the two incidents were related.

Prime Minister Tony Abbott convened a national security meeting to deal with the "disturbing" developments, suggesting only one person was responsible for the Lindt cafe incident.

Television footage showed several people inside the cafe standing with their hands pressed against the windows.

Pictures showed a black and white flag similar to those used by Islamic State militants in Iraq and Syria being held up by what appeared to be a staff member and another woman. It was unclear how many assailants were involved.

"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 Lindt cafe. Several were seen with their arms in the air. 

Opposition Leader Bill Shorten said he had spoken with Mr Abbott this morning and offered him the Opposition’s full support.

“Our thoughts and prayers today are with the innocent people involved ... (and) also with their families who are seeing this incredibly distressing situation unfold, along with the rest of Australia.

“Australians can be assured that we are one when it comes to keeping Australians safe.”

Indian Prime Minister Narendra Modi expressed deep concerns over the Sydney cafe siege incident. 

The incident in Sydney is disturbing, PM Narendra Modi said. 

NOTE: (About Martin Place): The cafe is located in Martin Place, a plaza in the heart of the Sydney's financial and shopping district that is packed with holiday shoppers this time of year. It is home to the state premier’s office, the Reserve Bank of Australia, and the headquarters of two of the nation’s largest banks. The state parliament house is a few blocks away.