A spokesman for al-Shabaab states that several of its members are inside the hotel.
"The security forces are fighting a number of armed men who have barricaded themselves in the hotel area, but they will very soon have put a stop to the siege," police Ibrahim Mohamed told AFP.
The hotel being attacked is a few hundred meters from the president's well-guarded residence, Villa Somalia. The hotel is popular with government officials and diplomats and has been attacked on three previous occasions.