Terrorists are today holding up to 20 hostages in an armed siege in a cafe in Sydney where a black Islamic flag was being held up in a window.
Witnesses reported seeing staff and customers sobbing as they were forced to stand with their hands pressed against the windows of the Lindt cafe, in Martin Place.
There are unconfirmed reports that one of the hostage-takers has made contact with police saying that he has 'devices all over the city' and 'wants to speak with the prime minister live on radio', according to Ray Hadley, from 2GB.
Up to two gunmen are involved in the siege but dozens of armed police have sealed off the streets surrounding the site. One gunman is believed to have a shotgun and possibly an explosive device.
The incident began just hours after a 25-year-old suspect was arrested in a terror raid in Sydney.
Officials have also evacuated the Opera House after reports of a suspicious device.
Martin Place has been shut down and scores of police are surrounding the building after the alarm was raised about 9.45am.
Journalist Chris Kenny, who was in the shop about 20 minutes before the siege began, said he understood the automatic glass sliding doors had been disabled.
'I did speak to a couple of people who saw a bit more of this unfold than I did,' he said.
'One woman said she tried to go into the shop just after I came out with my takeaway coffee but the doors wouldn't open.
'So obviously whoever is doing this has disabled the automatic glass sliding doors to stop anyone else going in and she said immediately she could see there was a weapon.
'The woman was quite frantic but very clear what she was telling (the police).
'I know the faces of the people who are sitting there enjoying a morning coffee.
The Seven Network newsroom, which is in a building opposite the cafe, has been evacuated.
Other buildings in Martin Place, including the nearby Westpac building, have been cleared.
'We're just recommending no one go near Martin Place at the moment,' a NSW Police spokeswoman said.
Martin Place train station has been closed and public buses are being turned away.
A staff member at the Reserve Bank told Daily Mail Australia they were unable to be evacuated because Martin Place had been closed. Staff have been told to move away from the windows.
Another woman who works in the government building opposite the cafe tried to call her her office to say she couldn't get past cordons and all the phone lines were down.
Patients from the nearby Sydney Hospital patients are also being evacuated.
Rodrigo Neryt was arriving at Channel Seven for his first day of work experience when he heard screaming out the front of the café.
‘I was at the corner when everything started. I saw people yelling and screaming and two police cars arriving at the scene. I saw what looked like a black ISIS flag and they were holding it up’
John Edwards works across the road from the cafe on the ninth floor of 53 Martin Place.
He said every floor of the building had been cleared about 11.15am.
'We were evacuated out of the building from the basement,' Mr Edwards told Daily Mail Australia.
'All we were told by security was to get out.'
It was alleged that Omarjan Azari, the 22-year-old Sydney man arrested on terrorism charges in September, was planning a public beheading in Martin Place.
The alleged terror plot, mentioned in a conversation between Australian terrorism recruiter in Syria, Mohammad Ali Barylei and Azari, involved selecting a member of the public at random, beheading them and then covering their body in a flag.
The whole incident was going to be filmed, and then used as propaganda for the ISIS cause.
Federal prosecutors said the alleged terror plot was 'clearly designed to shock, horror and terrify the community'
Police Prosecutor Michael Allnutt said that Azari had made a threat which involved a 'random selection of persons to execute' during a telephone conversation with Baryalei.
Azari was arrested on September 18 and charged with preparing for an act of terrorism.
He is due in court this week for a bail application.
The flag being held up in the window of the cafe is believed to be a Shahada flag, which is used by the group, Jabhat al Nusra.
Jabhat al Nusra was formed in January 2012, in the Syrian civil war to fight the Syrian government forces.
Jabhat al Nusra, or JN, aims to overthrow the Assad regime and replace it with a Sunni Islamic state.
Although the group is affiliated with al-Qaeda, Jabhat al-Nusra does not emphasize Western targets or global jihad, focusing instead on the 'near enemy' of the Syrian state.
Martin Place is one of Sydney's busiest streets and is at the centre of the CBD. The Lindt cafe where the hostages are being held specialises in chocolate and has a number of branches across the city.
By Emily Crane, Daniel Piotrowski, Candace Sutton and Sarah Dean