Sixty-three hostages were rescued, 33 of them wounded, from the Burkinabe capital's four-star Splendid hotel about two hours after the assault began and heavy gun battles were still being waged on the top floors of the hotel, popular with UN staff and foreigners.
Twenty people have been confirmed dead, but the toll could rise further as interior minister Simon Campaore told AFP that firefighters had seen 10 bodies on the terrace of a restaurant opposite the hotel.
"We don't yet have a total tally of the dead. The Burkinabe forces are still combing the hotel," Campaore said.
He said it was unclear how many attackers were still inside the 147-room hotel.
"The assault is ongoing with the Burkinabe forces supported by French special forces," communication minister Remis Dandjinou told AFP.
The attack comes less than two months after a jihadist hostage siege at the luxury Radisson Blu hotel in the Malian capital Bamako left 20 people dead, including 14 foreigners - an attack claimed by the same Al-Qaeda affiliate behind the unfolding Ouagadougou assault.
The head of the city's main hospital confirmed prior to the start of the counter-assault at least 20 people had been killed and another 15 injured.
A restaurant opposite the hotel was also attacked and a staff member, reached by telephone, said several people had been killed, but was not able to give an exact toll.
Al-Qaeda in the Islamic Maghreb (AQIM) claimed responsibility for the attack saying it was "revenge against France and the disbelieving West", according to US-based monitoring group SITE.
The attackers were members of the Al-Murabitoun group based in Mali and run by Mokhtar Belmokhtar, SITE said.
An AFP reporter at one point saw three men clad in turbans firing at the scene on Avenue Kwame Nkrumah, one of Ouagadougou's main thoroughfares.
A witness also reported seeing four assailants who were of Arab or white appearance and "wearing turbans".
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