"The male hostage was remarkably calm when relaying information over the phone from the gunman," said Ray Hadley, a radio presenter of 2GB, a commercial radio station here.

Hadley said he could hear the gunman talking in the background during the phone conversation. The gunman wanted the hostage to speak live on radio, a demand Hadley claimed to have refused.

"I told the hostage it would not be in his best interest or my best interest to allow that to happen because I'm not a trained negotiator, I don't have any expertise in this, there are people who will talk to both the hostages and the gunman and they will be knowing what to do," said Hadley.

Hadley said he has spoken to New South Wales Police Commissioner Andrew Scipione about the phone call. Scipione asked him not to allow the hostage to speak on air, he added.

Hadley claimed the gunman was talking about "other operatives being involved", and said he was instructed to call back. "They talked about a password they would give me...I have no idea what that means, what it's about," Hadley said.

"I could hear the person in the background giving instructions to the young man I was talking to.”

A gunman took over 30 people hostage at a busy cafe located not far from the Indian consulate in this Australian city.

The dramatic siege took place in Sydney's bustling central business district, days ahead of Christmas.

The hostages were seen standing with their hands up at the windows of the Lindt Chocolate Cafe in Martin Place. There was also a black and white flag, believed to be a jihadi flag, cites reports.

Heavily armed police responded quickly and surrounded the building. There were conflicting reports about the number of hostages. While one account put the number of hostages at 20, another said there are over 30 hostages.

Three hostages managed to flee, police said adding that nobody was harmed in the initial hours.

Australian Prime Minister Tony Abbott called for calm as security personnel tried feverishly to tackle the siege.

Thousands of workers across the city have been sent home early and some of the city's major buildings including the Opera House, the State Library, Channel Seven, the New South Wales Parliamentary executive offices, the criminal courts, the Downing Centre and several city legal chambers were evacuated.

The Indian consulate is located less than a kilometre away. Abbott said police "are currently responding to a reported hostage taking incident in Martin Place in Sydney".

The National Security Committee of the Cabinet has also been convened for briefings on the situation.

The Prime Minister described it as a "deeply concerning incident, but all Australians should be reassured that our law enforcement and security agencies are well trained and equipped and are responding in a thorough and professional manner".

In New Delhi, Prime Minister Narendra Modi expressed concern over the siege. "The incident in Sydney is disturbing. Such acts are inhuman and deeply unfortunate. I pray for everyone's safety," the PM said in a statement.

New South Wales (NSW) Police Commissioner Andrew Scipione said police were yet to make contact with the  offenders who laid siege at the Lindt Chocolat Cafe, the Sydney Morning Herald reported.

"We are still determining what it is that may well be the motivation. We are not in a position to determine where the individual is from," media report quoted Scipione as saying.

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