Update 10.48am: It has now been confirmed that 20 hostages have been killed during a siege in a cafe in the Bangladesh capital Dhaka.
At least six militants have been killed and 13 hostages rescued after Bangladeshi security forces stormed a Dhaka restaurant popular with foreigners to end a 10-hour stand-off.
Lt Col Tuhin Mohammad Masud, head of the Rapid Action Battalion, said some militants were captured in Saturday's operation.
"We have gunned down at least six terrorists and the main building is cleared, but the operation is still going on," he said.
About 35 people were taken hostage, including about 20 foreigners, when gunmen stormed the the Holey Artisan Bakery in the capital's Gulshan area on Friday night.
Lt Col Masud said the rescued include a Japanese, who was injured, and two Sri Lankans.
He said there were casualties among other hostages, but did not provide details.
A news agency affiliated with ‘IS’ claimed 24 people had been killed and 40 wounded, including foreigners, according to Site. The figures could not be independently confirmed. The Amaq news agency also posted photos purportedly showing the bodies of hostages.
Police said two officers died in hospital after being wounded in the initial gunfire with as many as nine attackers, who also hurled bombs.
Ten of the 26 wounded were in a critical condition, six of whom were on life support, according to hospital staff, who said the injuries ranged from broken bones to gunshot wounds. One civilian was among the wounded.
A Japanese government spokesman said a Japanese hostage has been rescued but seven others are unaccounted for.
Deputy chief cabinet secretary Koichi Hagiuda said that the eight were together at the restaurant during the attack.
Mr Hagiuda said the Japanese man who was rescued was shot and is still being treated.
He said the eight people were from different companies involved in the same project led by the Japan International Cooperation Agency.
The so-called ‘Islamic State’ group said it carried out the attack, according to the SITE Intelligence Group, which monitors extremist activity online.
With the sound of gunfire and explosions, TV stations reported that the rescue operation began at 7.40am. It included troops with automatic weapons and at least seven armoured vehicles.
Reports said an Argentine and two Bangladeshis were rescued from the restaurant early today.
Commandos storming the restaurant discovered five bodies lying in blood, the police official told Channel 24 TV station.
The attack marks an escalation in the growing drumbeat of militant violence to hit the traditionally moderate Muslim-majority nation in the past three years, but with increasing frequency in recent months. Most attacks have been by machete-wielding men singling out individual activists, foreigners and religious minorities.
Bangladesh did not immediately respond to the claim of responsibility by ‘IS’, but in the past has denied that the extremist group has a presence in the country. The US State Department said it had seen the IS claim, but could not confirm its authenticity.
Restaurant kitchen staffer Sumon Reza, was among more than 10 people who managed to run to the rooftop and escape when the militants moved in on Friday night.
He said the attackers chanted "Allahu Akbar" (God is great) as they launched the attack at around 9.20pm, initially opening fire with blanks. A huge contingent of security forces cordoned off the area around the bakery.
Benazir Ahmed, head of the Rapid Action Battalion, said earlier: "Some derailed youths have entered the restaurant and launched the attack."
"We have talked to some of the people who fled the restaurant after the attack. We want to resolve this peacefully. We are trying to talk to the attackers, we want to listen to them about what they want.
"Our first priority is to save the lives of the people trapped inside."
Among the hostages was a businessman and his wife and two children, according to his uncle Anwarul Karim.
"My nephew Hasnat Karim called me and said he was inside with his family. He told me, 'Please save us, please!' And he hung up," he said.
In Washington, a White House official said US president Barack Obama was briefed on the attack by his chief counter-terrorism adviser Lisa Monaco.
State Department spokesman John Kirby said the US was in contact with the Bangladesh government and had offered help to bring those responsible to justice.
He said all official American staff were accounted for with no injuries reported.
The spree of recent attacks in Bangladesh have raised fears that religious extremists are gaining a foothold in the country, despite its traditions of secularism and tolerance.
About two dozen atheist writers, publishers, members of religious minorities, social activists and foreign aid workers have been killed since 2013.
On Friday, a Hindu temple worker was hacked to death by at least three assailants in south-west Bangladesh. IS and and al Qaida affiliates have claimed responsibility for many of the attacks.
Prime minister Sheikh Hasina's government has cracked down on domestic radical Islamists.
It has accused local terrorists and opposition political parties - especially the main opposition Bangladesh Nationalist Party and its Islamist ally Jamaat-e-Islami - of orchestrating the violence in order to destabilise the nation, which both parties deny.
A co-owner of the restaurant, Nasirul Alam Porag, said he was not able to communicate with his staff.
Mr Porag was in Bangkok, Thailand, when news of the siege reached him.
"Up until five minutes ago I didn't know anything. There is no one on the ground we can communicate with, not even the staff," he said.
He said the restaurant employed about 50 staff and 20 were present at the time of the attack.
The Dhaka restaurant opened two years ago and Mr Porag, one of three owners, is now managing the trio's new eatery in Bangkok.