Sydney siege a brush with terrorism: Tony Abbott

Prime Minister Tony Abbott has described the violent siege in Sydney's CBD as a "brush with terrorism" and said the perpetrator had used the symbolism of Islamic State.

Police confirmed two hostages and the gunman at the centre of a 16-hour siege at a cafe in Sydney's CBD were shot dead.

About 2:10 am (AEDT) there was a confrontation between police and Iranian cleric Man Haron Monis, who had taken 17 people hostage inside the Lindt Chocolate Cafe in Martin Place on Monday morning.

Mr Abbott said it would take time to clarify exactly what happened and that he would travel to Sydney this afternoon for official briefings.

He said the man behind the siege, Man Haron Monis, was well known to authorities.

"He had a long history of violent crime, infatuation with extremism and mental instability," he said.

"We know that he sent offensive letters to the families of Australian soldiers killed in Afghanistan and was found guilty of offences related to this.

"We also know that he posted graphic extremist material online. As the siege unfolded yesterday, he sought to cloak his actions with the symbolism of the ISIL death cult.

"Tragically, there are people in our community ready to engage in politically motivated violence."

But Mr Abbott said he wanted to offer words of comfort and reassurance to Australians.

"Australians should be reassured by the way our law enforcement and security agencies responded to this brush with terrorism," he said.

It's tragic beyond words that people going about their everyday business should have been caught up in such a horrific incident.

Prime Minister Tony Abbott

"There is nothing more Australian than dropping in at the local cafe for a morning coffee and it's tragic beyond words that people going about their everyday business should have been caught up in such a horrific incident.

"Our hearts go out to all of those caught up in this appalling incident and their loved ones."

Opposition Leader Bill Shorten said he hoped there would be a permanent memorial put in place to the victims of "this cowardly act of deranged evil".

"For the friends and loved ones of two innocent people, 17 hours of dreadful anxiety has ended in unimaginable, heartbreaking loss," he said.

"To all those touched by this tragedy, I join with the Prime Minister in offering the heartfelt condolences of the nation."

He said he was "partners" with Mr Abbott in keeping Australians safe and, when asked if he was comfortable with the Prime Minister's description of the crime, he said he supported his actions.

"I am certainly not going to be criticising the Prime Minister today," Mr Shorten said.

"That is not what Australians need. When I say that, what I also recognise is that the Prime Minister and I are united by protecting the security and safety of Australians and that is what Australians want to hear from our political leaders."

The Governor-General Sir Peter Cosgrove said it was a "time for coming together".

"We must unite in our resolve to protect what we value most - our way of life, our care and respect for each other," he said in a statement.

"Now is a time for unity, as Australians."

A statement from Greens Acting Leader Adam Bandt also said it was "critical that the nation comes together today".

"We should comfort one another and open our arms in warm embrace to all peace-loving people regardless of faith, race or nationality," he said.