Terrorists on Friday stormed a popular cafe in the diplomatic area of the Bangladeshi capital, Dhaka, and took a number of hostages, the BBC reports.
Several foreigners are among those being held by eight or nine armed men in the city's Gulshan district, officials told the British network.
Two police officers have been killed in a gun battle, a spokesman said, and about 30 others injured.
The Islamic State (ISIS) jihadist group claimed the attack, saying in a statement on its self-styled news agency Amaq that its terrorists had attacked a restaurant "frequented by foreigners".
The group claimed that more than 20 people "of different nationalities" had been killed but this has not been confirmed.
Security forces said they are trying to negotiate the hostages' release.
Italian nationals are believed to be among those taken captive by the terrorists, a source at the Italian foreign ministry said, quoted by Reuters.
"We want to resolve this peacefully. We are trying to talk to the attackers," said Benazir Ahmed, chief of the Rapid Action Battalion, Bangladesh's elite police force.
"Our first priority is to save the lives of the people trapped inside," he stressed.
Local police said the terrorists burst into the Holey Artisan Bakery cafe at about 21:20 local time (13:20 GMT) and opened fire.
The cafe is described as being popular with expatriates, diplomats and middle-class families.
Media reports quoted witnesses as saying that "Allahu Akbar" was heard as the attack took place.
Bangladesh last year apprehended four suspected members of ISIS, who reportedly admitted they planned "to attack important offices of the government and establish a caliphate" or Islamic government in the country.
(Arutz Sheva’s North American desk is keeping you updated until the start of Shabbat in New York. The time posted automatically on all Arutz Sheva articles, however, is Israeli time.)