A number of Australian Muslim organisations have expressed their "shock and horror" at the unfolding hostage situation in Sydney's Martin Place.

A gunman forced hostages inside a Lindt cafe to hold up a black Islamic flag in what is a suspected attack by a person "claiming political motivation", according to Australian Prime Minister Tony Abbott.

A statement from 50 Australian Muslim organisations said that the community's "thoughts go to the hostages and their loved ones" and that they "pray for their safety".

"The Australian Muslim community shares with fellow Sydneysiders their utter shock and horror at the unprecedented scenes emerging from the Lindt cafe in Martin Place this morning," the statement reads.

"We reject any attempt to take the innocent life of any human being, or to instil fear and terror into their hearts.

"Any such despicable act only serves to play into the agendas of those who seek to destroy the goodwill of the people of Australia and to further damage, and ridicule the religion of Islam, and Australian Muslims throughout this country.

"We urge everyone to stay calm as the police and authorities continue to deal with this incident and the facts come to light. We ask Australian media to be responsible in their reporting. This is a time for all Australians to stand together and support each other.

"We pray for a swift resolution to this crisis with no injuries or loss of life."

The attacker is believed to be armed and wearing a backpack and a black bandana. He forced three hostages to hold up an Islamic flag to the shop window, which read in Arabic: "There is no God but Allah, and Muhammad is his messenger."

In a press conference in response to the hostage situation, Abbott said: "Australia is a peaceful, open and generous society - nothing should ever change that and that's why I would urge all Australians today to go about their business as usual."