The hostage-taker was a young man armed with a handgun, though it wasn't clear whether it contained live ammunition, police spokesman Hans-Peter Kammerer said. The incident started shortly before 9 am (1230 IST) today and police were in contact with the man by telephone.
One of the hostages was a deputy mayor, Sepp Misslbeck. He was freed some five hours into the standoff, police spokesman Josef Petzenhauser said.
Bavaria's state interior minister, Joachim Herrmann, said the hostage-taker had previously stalked a female employee at the city hall, German news agency dpa reported.
Mayor Alfred Lehmann said the man "wants us to reverse a decision." He said it wasn't immediately clear what decision he meant, but he may have been referring to the fact he had been barred from Ingolstadt's city halls.
The old city hall, one of two city halls in Ingolstadt, dates back to the 14th century, though the building was expanded in the 19th century. It is home to the mayor's office and the city's tourist information office, among other administrative departments.
There was no indication of any connection between the visit and the hostage-taking. However, Merkel's conservative Christian Democratic Union said it decided to cancel the rally.
Ingolstadt is located some 70 kilometres north of Munich and has about 125,000 inhabitants.
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