Sydney’s CBD has been locked down after an armed man has entered a cafe in Martin Place and taken several people hostage. 

At least three people have been seen through the windows of the Lindt Cafe holding up their hands and a black flag featuring white Arabic text. 

Police and counter-terrorism units have surrounded the cafe and locked down the surrounding area. 

Prime Minister Tony Abbott has appeared on national television and urged Australians to remain calm and if they are outside Sydney CBD to go about their daily business. 

Currently there is only believed to be one suspect inside the building. 

Police are attempting to make contact with the people inside the cafe. 

Seven Network television crews have captured footage of an adult male moving around inside the cafe, wearing a black headband and backpack and carrying a long, thin black object. 

Eyewitnesses have reported that the man inside the cafe is armed with a shotgun. 

The black flag shown in the window has been identified by police as the Black Standard, which is associated with Islam and the concept of jihad (‘struggle’). 

It has not been confirmed that this incident is an act of terrorism but the Prime Minster has described the situation as having strong indications that there is ‘political’ motivations behind the incident. 

The Queensland Police commissioner has briefed Premier Campbell Newman and has stated that there is no identified immediate threat to Queensland residents. 

This story will be updated as the situation progresses.