A car bomb exploded at the gate of the African hotel and was followed by gunfire heard inside, Somali police captain Ahmed Hassan told CNN. The incident occurred around 5:00 p.m. local time (9:00 a.m.ET), Hassan added.
Armed men from Al-Qaeda branch Al-Shabaab were allowed access to the building after the car bomb detonated at the gate, he said.
Police say an operation is underway to rescue people from the hotel. At the moment it is unclear whether there will be any casualties.
The reason for the attack is also unclear, but Hassan said there was a top military commander in the hotel at the time of the attack. Other senior military officials and lawmakers were also at the hotel, Hassan said.
The hotel is frequented by MPs, politicians and security officials, but not by foreigners.
Outside the hotel is the main security checkpoint to the airport and Halane base, which is home to Western missions, including the US Embassy.
Al-Shabaab has claimed responsibility for the attack through a statement broadcast by Andalus Radio, the mouthpiece channel. CNN has not been able to independently verify this claim.
US forces in Somalia mainly train and advise local Somali forces in the fight against Al-Shabaab. The US military is also conducting air strikes against the group and the local ISIS branch in the country, killing a top al-Shabaab leader in a targeted attack in September.
Omar Nor reported from Mogadishu and Radina Gigova wrote from Atlanta, Georgia.