A gun battle is taking place between police and unidentified attackers in the diplomatic area of the Bangladeshi capital, Dhaka, officials say.
Three people, including two police officers, have been wounded after gunmen stormed a cafe in the Gulshan district, police say.
The Dhaka Tribune said at least 20 civilians had been taken hostage, but this was not confirmed.
Police and security forces have sealed off the area.
“Unknown number of people are still inside but we cannot confirm whether they are held hostage,” Police officer Sayedur Rahman told AFP news agency.
Local media reported that several gunmen had entered the Holey Artisan Bakery cafe and opened fire.
The cafe is described as being popular with expatriates, diplomats and middle-class families.
The US embassy in Dhaka tweeted that there were “reports of shooting and hostage situation”.
It is not clear who the attackers are, although a police officer told the BBC that Islamic militants were suspected.
Media reports quoted witnesses as saying that “Allahu Akbar”, meaning “God is greatest”, was heard as the attack took place.
BBC South Asia editor Jill McGivering says that although high-profile gun attacks are rare in Bangladesh, the latest incident follows a series of murders widely blamed on Islamist extremists.