Three people have been pronounced dead after a siege in a Sydney cafe that came to a dramatic end overnight when armed police stormed the building.

New South Wales Police have now confirmed the 50-year-old "lone gunman" at the heart of the hostage crisis, Man Horan Monis, was declared dead at hospital.

"Another man, aged 34, and a woman, aged 38, were pronounced dead after being taken to hospital," police said in a statement.

"Two women have been taken to hospital with non-life threatening injuries, while a male police officer suffered a non-life threatening wound to his face from gunshot pellets and was taken to hospital.

"Another woman has been taken to hospital as a precaution."

Seventeen hostages, including five who escaped in the early hours of the hostage crisis, have been accounted for, Police Commissioner Andrew Scipione has told reporters in Australia's biggest city.

"Our first thoughts and prayers this morning are with the innocent victims of this horrendous and vicious attack," NSW Premier Mike Baird said.

"I want to say to their family and friends, everyone in NSW stands beside you."

Mr Scipione said gunfire at the Lindt Chocolat Cafe prompted police to move in just after 2am local time.

The Professional Standards Command will now oversee a critical incident investigation, which is standard procedure for situations in which police officers fire their weapons.

Mr Scipione said the uninjured hostages would be interviewed as part of that investigation: "We need to talk to them. They're being looked after in terms of their psychological needs ... family are involved in this process."

He added that the Lindt cafe had been secured and no explosive devices found.

Mr Scipione said a number of hostages had "traumatic injuries" and some had "medical conditions".

"We also have a lone gunman who has been shot and killed and we have a male police officer who has been injured as a result of a gunshot wound to the face."

He added that the injured officer was in a "good condition" and was being assessed in hospital.

"He is well and grateful to be alive, let me assure you," Mr Scipione said.

The commissioner said: "This was an isolated incident, it is an isolated incident. Do not let this sort of incident bring about any loss of confidence about working or visiting in our city.

"It was the act of an individual. This should never change or destroy the way of our life. This won't change our lives, this will not change the things we hold dear in this country."

Mr Scipione called for the community to come together after the attack, saying "We're Australians, we support mates, we help friends, this is exactly what we should be doing at this time."

He also defended the work of the police involved in the incident and thanked them.

"While everybody might now second guess as to what's actually occurred in the last hours, they are the ones who had to make the decision," he said.

"Our police had to actually deal with this incident. It was tough, exacting work.

"I want to point out that they have saved lives, they have saved many lives, and to those men and women, all that were involved, we thank you."

Asked why the rescuers went into the building, Mr Scipione said: "They made that call because they believed that at that time if they didn't enter, there would have been many more lives lost."

He added: "Events that were unfolding inside the premises led them to the belief that now was the time to actually deploy, and they did.

"I understand there were a number of gunshots that were heard, which caused officers to move towards an emergency action plan."

Mr Baird said: "I am concerned that there was a vicious, horrendous attack that has taken place in the heart of our city."

Mr Scipione said the premises had been secured, and at this stage no explosive devices had been found.

Australian prime minister Tony Abbott said in a statement: "Australians awoke to the news this morning that the siege in Martin Place had ended.

"Our thoughts and prayers are with the families of the two deceased hostages, the wounded and the other hostages.

"I commend the courage and professionalism of the New South Wales Police and other emergency services involved."

Mr Abbott said Commonwealth agencies would continue to provide support and the country's national security committee would meet to review the incident.

The end of the 16-hour siege came soon after the hostage taker was named as self-styled Muslim cleric Monis.

The Iranian-born extremist had attracted attention in recent years by writing offensive letters to the families of Australian soldiers killed in Afghanistan.

Dubbed the "hate sheikh", he was sentenced to 300 hours of community service for writing the letters.

He was also banned in 2010 from sending similar "letters of condolence" to the families of British soldiers killed in that conflict.

It is believed Monis was 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 Monis 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."

Adam Houda, a well-known Sydney solicitor who had represented Monis, described him as "mad as a cut snake".