There are not believed to be any Australian casualties at this time.

An unknown group, Deccan Mujahideen, sent an email to the media claiming responsibility for the attacks.

The BBC reported that Western hostages were taken in the Taj hotel and the Oberoi, two prominent luxury hotels in the city centre, after gunmen opened fire.

The exact number of hostages was not known but one senior official estimated that 50-60 people were being detained in the Taj.

An unnamed British businessman said he was held hostage with about 15 people at the Oberoi by two heavily armed young men dressed in T-shirts and jeans.

"They took us up the elevator; there was lot of smoke and fire and guns," he told a local TV station. "Me and my friend escaped down the fire exit."

Three foreigners were reportedly being held hostage inside Mumbai's Trident Hotel, including one Belgian and one Indonesian.

The JW Marriot Hotel in the Mumbai district of Juhu has also been cordoned off by police.

Local media says gunfire has also been reported at that hotel, which is about 20 kilometres from the area where the Taj and Oberoi hotels are.

Australians caught up in attacks

At least 20 Australians were in the Oberoi Hotel at the time of the attack, all of them members of a NSW trade delegation organised by the Department of State and Regional Development.

A DFAT spokesman said the Australian Government was trying to confirm the safety and welfare of all Australians who may have been caught up in the attacks.

The department has contacted the families of the two injured Australians and is providing consular assistance in Mumbai, he said.

"Mumbai police have stated that the attacks are terror related," he said.

"The Australian Government unreservedly condemns these atrocious attacks on innocent people."

A NSW Department of State and Regional Development spokeswoman said the Australian trade delegation, including representatives of 18 businesses plus two departmental staff, had been told to evacuate the Oberoi.

All were believed to be unharmed, she said.

At the Oberoi, police officer P.I. Patil said shots had been fired inside and the hotel had been cordoned off. He would not give any other details.

Navy commandos were reportedly deployed in counter terrorism operations at the Taj and the Oberoi.

Central train station, police headquarters attacked

Gunmen also attacked Leopold's restaurant, a Mumbai landmark, and the crowded Chhatrapati Shivaji Terminus station in southern Mumbai.

Mumbai General Railway Police Commissioner A.K. Sharma was quoted as saying that several men armed with AK-47 rifles had stormed into the passenger hall of the station shortly after 10.30pm on Wednesday (4am AEDT), opened fire and thrown grenades.

The Press Trust of India news agency quoted Commissioner Sharma as saying that the gunmen were holed up in the train station.

Leopold's restaurant was riddled with bullet holes and there were blood stains on the floor and shoes left by fleeing customers, an Associated Press reporter said.

At least 25 people had been brought to the G.T. Hospital near the shootings, hospital official Yogesh Pandey said.

The gunmen also attacked police headquarters in south Mumbai, the area where most of the attacks took place.

"We are under fire, there is shooting at the gate," Constable A Shetti said by phone from police headquarters.

The head of Mumbai's anti-terrorist squad Hemant Karkare was one of those killed, along with Mumbai's additional commissioner of police Ashok Kamte and high-level police officer Vijay Salaskar, The Times Of India is reporting.

Three people also died in what they described as a "bomb blast" in a taxi in the south-east of the city.

The motive for the attacks was not clear but Mumbai has frequently been targeted in terror attacks, including a series of blasts in July 2007 that killed 187 people.

Mumbai has been hit repeatedly by terrorist attacks since March 1993, when Muslim underworld figures tied to Pakistani militants allegedly carried out a series of bombings on the stock exchange, trains, hotels and petrol stations.

Authorities say those attacks, which killed 257 people and wounded more than 1100, were carried out to avenge the deaths of hundreds of Muslims in religious riots that had swept India.

Ten years later, in 2003, 52 people were killed in Mumbai bombings blamed on Muslim militants and in July 2007 a series of seven blasts ripped through railway trains and commuter rail stations.

At least 187 died in those attacks.

Serial blasts

There have been a series of co-ordinated attacks in India in recent months.

A little-known Islamic group, the Islamic Security Force-Indian Mujahedeen, claimed responsibility for serial blasts last month in India's north-east state of Assam that claimed nearly 80 lives.

A total of 12 explosions shook the insurgency-hit north-eastern state, six of them ripping through crowded areas in the main city of Guwahati.

Six weeks earlier, the capital New Delhi was hit by a series of bombs in crowded markets that left more than 20 dead. Those blasts were claimed by a group calling itself the Indian Mujahedeen.

Georgina Robinson, Arjun Ramachandran, Matt Wade and agencies