Officials said Somalia's internationally-backed President Hassan Sheikh Mohamud and Prime Minister Abdiweli Sheikh Ahmed were not inside the complex at the time and were "both safe". Security sources said they were with guards from the African Union's 22,000-strong AMISOM force.
"There were at least nine attackers, all have been killed, and the situation is under control, the attack is over," security official Abdi Ahmed said.
"There were eight blasts towards the end of the fighting, believed to have been suicide vests. They detonated themselves."
"Our commandos are inside the so-called presidential office," Shebab spokesman Abdulaziz Abu Musab told AFP. "We are in control of the headquarters of the apostate regime."
"The enemy suffered high casualties during the operation, which is ongoing. The assault is a victory for us since the foreign installed government said that security was beefed up," he added.
Police said the attackers launched a two-pronged attack against the complex, setting off a large bomb at the rear of the compound and then storming in via another entrance.
"Bullets are flying around coming from the palace," said Halimo Nure, who lives close to the compound, one of the most heavily defended areas of the city. "There is shooting and gunfire, there are also explosions like they are using grenades."
The UN's top envoy to Somalia, Nicholas Kay, condemned the "attack on Somalia's government compound is an attempt to rob Somalis of the peaceful state they deserve."
"Terror will not win," he said.
The attack appeared to be a repeat of a Shebab assault against the presidential palace in February, when the Islamists managed to penetrate the complex before being killed by guards.
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