Speaking to The Associated Press by telephone from the scene, Capt. Mohamed Hussein said more than 20 people, including government officials, were thought to be trapped as security forces continued to battle the extremists holed up on the top floor.
Its sister hotel, the Nasahablod, was targeted by Al Shabab in a similar attack that killed 11 people in June a year ago.
Following the blasts yesterday, witnesses reported hearing gunfire at the Nasa Hablod Hotel 2 which was sealed off by security forces with gunmen believed to be inside.
The attack came two weeks after a massive truck bomb exploded in central Mogadishu, killing at least 358 people, making it the deadliest attack in the troubled country's history.
According to reports the group also broadcast a statement on its Andalus radio station, claiming: "Mujahedeen fighters are inside Nashablod Two hotel where. apostate officials are staying".
"A vehicle loaded with explosives went off at the entrance of Nasa Hablod Hotel and there is gunfire", police official Ibrahim Mohamed told AFP, saying there was also "a minibus loaded with explosives which went off a nearby intersection".
Nasa-Hablod hotel is located near Somalia's presidential palace and frequently used by Somali politicians, including ministers and lawmakers.
The attack started with what is assumed to have been a suicide auto bomb detonated outside the Nasa-Hablod 2 Hotel near the presidential palace in Mogadishu.
Mogadishu's Aamin ambulance service removed bodies from the scene and evacuated 17 wounded, its director Abdukadir Abdurahman said. "We are fighting inside", Abdiasis Abu Musab, the group's military operations spokesman, told Reuters. Sporadic gunfire could be heard in the vicinity.
"I was very lucky", he added. Two more blasts were heard in the area, with one reported as a suicide bombing.
"Turkey will continue to stand by the Somali people and its government in the fight against terrorism".