Loud bangs erupted as police stormed the Lindt Chocolate Cafe in downtown Sydney shortly after five to six hostages, including the Indian, were seen running out of the eatery.
One weeping woman could be seen being carried out of the officers.
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The siege began after 9 AM local time and was continuing well past midnight with Australian media identifying the gunman as Haron Monis, who was granted political asylum in Australia.
The 50-year-old was described by his former lawyer as an isolated figure, who was acting alone.
The gunman, who arrived in Australia as a refugee in 1996, achieved notoriety after he sent letters to the families of Australian soldiers who lost their lives in Afghanistan, accusing them of being murderers.
In November last year, he was charged with being an accessory before and after the murder of his ex-wife, who was allegedly stabbed and set alight in her apartment complex. In March, he was charged with sexually and indecently assaulting a young woman in 2002.
The Indian man held hostage has been identified as Vishwakant Ankireddy, in his mid-30s. He has been working in Australia for the past seven years and is a native of Guntur in Andhra Pradesh.
He was at the Lindt Chocolate Cafe in Martin Place, the heart of Sydney's business district when the gunman entered the cafe and took the people inside hostage in Australia's largest city.
Although the Indian cricket team is currently in Brisbane, some 700 kms away from Sydney, security around them has also been significantly beefed up in the wake of the hostage crisis in Sydney.
Australian authorities have conveyed to the Indian government that the team's security has been enhanced.
Soon after the hostage taking incident, authorities sealed off surrounding streets, evacuated people from buildings, and suspended rail services following the siege in the capital of New South Wales (NSW).
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