State news agency SONNA reported that Islamist group al Shabaab had attacked with a car bomb at the hotel entrance and armed militants. It said gunfire was coming from inside the hotel and that government security forces had been deployed.
"There are deaths and injuries of civilians who were passing near the hotel and others who were inside the hotel. Among the dead is one director of the information ministry," SONNA said, citing information ministry spokesman Ismail Mukhtar Omar.
A witness, Ahmed Ali, told Reuters: "I heard a huge blast at the hotel, gunfire followed, and then clouds of smoke."
A police spokesman, Sadik Ali, confirmed there had been an explosion, adding: "We shall update you later."
Aamin ambulance service head Abdikadir Abdirahman said at least 28 people had been hurt. The hotel is frequented by many government officials, government workers and people from the Somali diaspora.
"So far we know 28 people are injured, we transported them before exchange of gunfire begun," he told Reuters.
Mohamed Nur, a government worker who lives near Lido beach said the government had deployed security forces in the area.
"The exchange of gunfire is terrible and stray bullets reached us near the beach," he added.
Somalia has been embroiled in deadly violence since 1991, when clan warlords overthrew leader Siad Barre and then turned on each other.Since 2008, al Shabaab has been fighting to overthrow the internationally-recognized central government and establish its rule based on its own interpretation of Islamic Sharia law.