The Sydney cafe siege has ended after armed police stormed the building amid the sound of gunfire.

The police operation was launched as five more hostages fled the cafe, more than 16 hours after the siege began.

They ran from the building with their arms aloft just after 2am local time.

Armed police and medics entered the building soon afterwards and five people were seen being taken away on stretchers.

New South Wales Police confirmed development in a Tweet: "Sydney siege is over. More details to follow."

"Lots of screaming," ABC reporter Nick Dole said from the scene.

The siege end came soon after the hostage taker was named as Muslim cleric Man Haron Monis, who recently attracted attention by writing offensive letters to the families of Australian soldiers killed in Afghanistan.

He was sentenced to 300 hours of community service for writing the offensive letters and was also banned in 2010 from writing similar "letters of condolence" to the families of British soldiers killed in that conflict.

It is believed Monis was out on bail after he was arrested earlier this year over sexual assault allegations stemming from 2002. He was also reportedly charged with being an accessory to the murder of his ex-wife.

His former lawyer said he believed he was acting alone and was not part of a terrorist conspiracy.

Manny Conditsis told the ABC: "This is a one-off random individual. It's not a concerted terrorism event or act.

"It's a damaged goods individual who's done something outrageous.

"His ideology is just so strong and so powerful that it clouds his vision for common sense and objectiveness."

As the siege came to an end, one hostage with blood on her bare feet could be seen being carried from the building in tears by armed officers.

The ABC reported a number of people were rushed to waiting ambulances, though it was not clear what injuries they suffered, if any.

Bomb disposal officers in protective gear were also seen entering the building and a bomb disposal robot was deployed.

It was not immediately clear what prompted the latest hostages to flee and the police to move in.

Earlier Chris Reason, a senior journalist at Seven News, which has its main Sydney newsroom across the plaza from the Lindt Chocolat Cafe, said he believed he could see the man inside carrying a pump-action shotgun.

Five people fled earlier in the hostage crisis, which began during morning rush hour at around 9.45am local time (10.45pm on Sunday UK time).

The first three ran out of the cafe in Martin Place six hours into the crisis and two women sprinted from a fire exit into the arms of waiting police shortly afterwards. Both women were wearing aprons with the Lindt chocolate logo, indicating they were cafe employees.

Earlier, two people - apparently hostages - held up a flag at the cafe window with an Islamic declaration of faith on it.

A message apparently sent by Monis in October to members of the Muslim community and published on his personal website voiced support for non-violent activism.

"Islam is the religion of peace and a Muslim should be a peace activist," Monis wrote in a letter he signed "Sheikh Haron".

"Islam is against oppression and any unfair violence. Islam is against terrorism. As I have repeatedly said earlier: 'this pen is my gun and these words are my bullets, I fight by these weapons against oppression to promote peace'."

The website was this afternoon suspended.

Speaking to reporters in Poole, Prime Minister David Cameron said the hostage situation in Sydney demonstrated the risk from Islamic extremists across the world.

"It is obviously very concerning, what has taken place, albeit on the other side of the world but in a country very close to our hearts, and it is a reminder of the threat we face from Islamic extremist terror," he said.