Mumbai: Fresh gunshots rang out on Thursday morning at the Hotel Taj where security forces battled terrorists holding hostages after a night of horror that left 101 people dead and over 250 injured in India's most audacious terror attack.

As soldiers, police and elite commandos fanned out across the country's commercial capital to rescue hostages and kill terrorists who stormed the city at night and struck at seven sites in the business hub of south Mumbai, one of the terrorists claimed that the attack was to avenge the "persecution" of Muslims in India.

Images: Terror strikes Mumbai again

The otherwise bustling city - home to Bollywood - was still on edge, more than 12 hours after a large but unknown number of terrorists armed with automatic rifles and grenades sneaked into Mumbai by the sea, a clear indication that they must be foreigners.

Desperate to cope with a situation they had never encountered before, the authorities declared a holiday in Mumbai on Thursday. The Bombay Stock Exchange and the National Stock Exchange were ordered closed for the day.

Most targets were foreigners' favourite hangouts

"This is a most audacious attack. It is a very serious situation and gun battles are still on in at least three places," said Maharashtra Chief Minister Vilasrao Deshmukh as leaders around the world denounced the well-planned terrorist operation.

Television footage showed some terrorists, wearing dark colour T-shirts and holding automatic rifles, near some of the buildings under attack. One of them, who called himself Shahadullah, telephoned the India TV channel from Oberoi-Trident Hotel, which too was stormed, to claim that he was from the Indian city of Hyderabad but he spoke in Hindustani with what appeared to be a Pakistani accent.

He told the channel that the attack had been carried out to avenge the 1992 razing of the Babri mosque in Ayodhya and the "persecution" of Muslims in India. He demanded the release of jailed Indian Mujahideen militants in exchange for tourists taken hostage at the Taj and Oberoi Trident hotels as well as Nariman House in the heart of the city.

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The man ended the telephonic conversation saying "Allah Hafiz".

The terrorists began targeting high profile landmarks close to the sea and popular with Western tourists from between 10.15 and 10.30 pm on Wednesday. The targets included Hotel Taj, Hotel Oberoi-Trident, Metro Theatre and the Chhatrapati Shivaji Terminus (formerly Victoria Terminus) railway station.

A grenade was also hurled at a taxi in Vile Parle, destroying it and killing its occupants, and one more attack took place at Mazgaon, a Mumbai suburb. A police van was hijacked.

Panic set in quickly all over the city, which has seen several terror attacks in the past. The outwitted police took them on but suffered losses initially. Among the first to die was Hemant Karkare, the highly regarded Anti-Terrorism Squad (ATS) chief heading the controversial probe into bomb attacks in Maharashtra blamed on Hindu radicals.

Among his four colleagues who were also believed to be killed were Additional Police Commissioners Ashok Kamte and Sadanand Date and Mumbai Police officer Vijay Salaskar who was known as "encounter specialist" for killing gangsters.

As police reinforcements rushed to the attack sites, backed by the hurriedly summoned paramilitary and Indian soldiers, 200 commandos of the National Security Guards (NSG) were flown from New Delhi. The NSG is trained to take on terrorists.

The security forces killed two terrorists and caught nine. But within a short time, a huge blast was heard on the top floor of the Taj Hotel and a raging fire erupted. Smoke billowed from there even on Thursday.

The situation appeared to be somewhat under control on Thursday, with police officers herding several tourists from the two hotels into ambulances and police vehicles to move them to safety. Yet there was no word on how many foreigners were dead but one Western woman - her nationality not known - was reportedly killed at Hotel Taj.

Maharashtra Director General of Police AN Roy said: "The terrorists have fired indiscriminately."

Chronology of terror attacks in Mumbai

Mumbai Police Commissioner Hasan Ghafoor said AK-47 and AK-56 as well as semi-automatic rifles besides grenades were used in the "coordinated terrorist acts". On Thursday, a five-kilometre radius in south Mumbai, which covers business districts such as Colaba, Cuff Parade, Nariman Point and Churchgate, was cordoned off.

Train services resumed in Mumbai on Thursday but there were few passengers. There were few vehicles on the roads. A nationwide alert was sounded following the synchronised attacks that came less than a month after over 50 people died in serial terror bombings in the northeastern state of Assam.

Across the world, governments and top leaders denounced the terror attack in Mumbai.

US president-elect Barack Obama asked Washington to work with India to root out and destroy terrorist networks worldwide. The State Department said the US stands ready to support the Indian authorities in dealing with the situation.

Full coverage: Mumbai terror attack

"Obama strongly condemns today's terrorist attacks in Mumbai," Brooke Anderson, his spokesperson on national security, said in statement. "These coordinated attacks on innocent civilians demonstrate the grave and urgent threat of terrorism."

At the United Nations, Secretary-General Ban Ki-moon said: "Such violence is totally unacceptable." Canada and the European Union too condemned the brazen display of terror.

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