Four al-Shabab attackers were also killed in the attack on Dayah hotel, which is often frequented by government officials, said Col Mohamoud Abdi, a senior Somali police officer.
Survivors described chaotic scenes in which hotel residents hid themselves under beds and others jumped out of windows of the four-story building to escape the extremist attackers.
"They kicked down room doors and at some point posed themselves as rescue teams by telling those inside to come out (only) to kill them," said Hassan Nur, a traditional Somali elder who participated in the election of members of Somalia's new parliament.
The assault on the hotel started when a suicide car bomb exploded at its gates.
Dozens of people, including lawmakers, were thought to have been staying at Mogadishu's Dayah hotel at the time of the morning attack, said Capt Mohamed Hussein. Heavy gunfire could still be heard inside the hotel, he said.
A nearby shopping center caught fire and dozens of people helped save goods in the business premises.
Somalia's homegrown Islamic extremist group al-Shabab claimed responsibility for the attack via its online radio, Andalus, saying its fighters succeeded in entering the hotel and an "operation is ongoing now."
In June, gunmen stormed the Nasa-Hablod hotel, killing at least 14 people. Two weeks before that, gunmen killed 15, including two members of parliament, at the Ambassador hotel.
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