* Islamic State claims responsibility for attack

* 8-9 gunmen attacked restaurant in Dhaka's Gulshan area

* Two police dead; 20 people injured

* About 20 hostages, including foreigners, in restaurant

People try to help an injured person, after gunmen stormed the Holey Artisan restaurant and took hostages, in the Gulshan area of Dhaka, Bangladesh July 1, 2016. [Photo/Agencies]

DHAKA/NEW DELHI - Bangladeshi police stormed a Dhaka restaurant on Saturday to free 20 hostages, including several foreigners, that were trapped inside after gunmen launched an attack on it late on Friday night, an official said.

"Our commandos have stormed into the restaurant. Intense gunfighting on," Mizanur Rahman Bhuiyan, a deputy director at the Rapid Action Battalion force, told Reuters

Islamic State, which has claimed the attacks, posted photos of what it said were dead foreigners killed in the assault on the cafe, where police believe eight to nine gunmen are holed up and armed with assault rifles and grenades.

Gowher Rizvi, an adviser to Bangladesh Prime Minister Sheikh Hasina, told Reuters that security forces had tried to negotiate a way out of the crisis.

Police said the gunmen attacked the upscale Holey Artisan restaurant in the Gulshan district of Dhaka, popular with expatriates, in an assault that began around 9 p.m local time on Friday.

The assailants exchanged sporadic gunfire with police outside for several hours after the attack but no gunshots had been heard from inside the restaurant since late Friday night, said Mizanur Rahman Bhuiyan, a deputy director at the Rapid Action Battalion force.

Islamic State said 24 people had died. Bangladesh police denied that, saying two police officers had been killed and at least 20 people wounded.

Italian and Indian nationals are among the hostages, said a duty officer at Rapid Action Battalion's (RAB) control room.

Italy's ambassador to Bangladesh, Mario Palma, told Italian state TV seven Italians were among the hostages.

"It is a suicide attack. They want to carry out a powerful and bloody operation and there is no room for negotiation," Palma said.

The hostage crisis marks an escalation from a recent spate of murders claimed by Islamic State and al Qaeda on liberals, gays, foreigners and religious minorities, and could deal a major blow to the country's vital $25 billion garment sector.

Last year, several Western retailers temporarily halted visits to Dhaka following the killing of two foreigners.