Australian police locked down the centre of the country's biggest city on Monday after an armed assailant walked into a downtown Sydney cafe, took hostages and forced them to display an Islamic flag, igniting fears of a jihadist attack.

Updated:

Two hostages run towards a police officer outside Lindt cafe, where other hostages are being held, in Martin Place in central Sydney.

NSW police confirmed on Twitter that no one has been injured so far.

NSW Police Deputy Commissioner Catherine Burn will hold a press conference to update on the hostage situation at 6:30 pm local time.

Five hostages in total, including two females, have now escaped from the Lindt cafe, according to Sydney Morning Herald and2GB 873AM, a local radio station.

The two women were both wearing aprons indicating they were staff.

It is unclear whether the hostages had been released by the gunman or had escaped. Police, who are speaking with the three men to gather information about what is happening inside, declined to specify how many hostages remained in the cafe.

Sydney Opera House announced on Twitter that all the performances tonight would be cancelled due to the hostage situation.

Television footage earlier showed three of the hostages running from the building, including one wearing a Lindt apron.

Two men (L in blue jacket; R in white shirt) are seen running out of the Lindt cafe, where hostages are being held, in this still image taken from video from Australia's Seven Network.

Australian police negotiators had been in contact with the gunman holding hostages in a Sydney cafe siege but refused to speculate on his possible motivation.

New South Wales Deputy Police Commissioner Catherine Burn declined to say how many were still being held in the cafe but said it "is not as high as 30".