Armed group Al Shabaab says it is behind the ongoing attack in Mogadishu Maka Al Mukarama.
Car bomb followed by heavy gunfire was targeted with the hotel popular with senior Somali government officials.
Police sources confirmed that seven people were killed in the attack among the dead is Somali ambassador to Switzerland Yussuf Baribari.
The source added that the Al Shabaab attackers are still inside the hotel with significant number of hostages trapped inside.
Somali special force and African Union troops have been called in to clear the hotel of the attackers.
Al Shabaab attack on similar hotel in Somali capital earlier this month has led to death of over 30 including members of national assembly.