The attack started at dawn when a suicide bomber detonated a vehicle laden with explosives at the gate of the Sahafi Hotel and then gunmen on foot shot at people in the hotel, Capt. Mohamed Hussein said.
"They have killed the owner of the hotel, a former military general, and other officials during the attack," Hussein said by phone frome the scene as gunfire could be heard in the hotel.
"There's a hostage situation inside the hotel," Hussein said, The Associated Press reported.
Al-Shabab, the extremist rebels waging an insurgency against Somalia's weak UN- backed government, claimed responsibility for the attack on a website associated with the group. Militants from the al-Qaeda linked group infiltrated the hotel after the blast, said the statement.
Somali troops and African Union forces were at the scene of the attack, according to a post on Twitter by the African Union Mission in Somalia, which has deployed troops to bolster Somalia's government against al-Shabab's insurgency.
The hotel is often frequented by Somali government officials and business executives and it has been targeted before. Two French security advisers were abducted from the hotel by militants in 2009.