FIGHTING continued today in Mumbai as chaos and confusion surrounded terrorist attacks that killed 101 people in the Indian city.

FIGHTING continued today in Mumbai as chaos and confusion surrounded terrorist attacks that killed 101 people in the Indian city.

Police and soldiers initially said the crisis was over but later reports said hostages were still being held at two hotels and another building, which were surrounded by Indian commandos.

More than 300 people were wounded in the highly co-ordinated attacks last night by gunmen, armed with assault rifles, grenades and explosives.

They invaded two five-star hotels, a popular restaurant, a crowded train station, a Jewish centre, two hospitals and other sites in the city.

Deccan Mujahideen, a previously unknown Islamic militant group, claimed responsibility for the massacre, the latest in a series of nationwide terror attacks in India over the past three years.

The attackers appeared to have been targeting Britons and Americans.

Among the dead were at least one Briton, an Australian, an Italian and a Japanese citizen.

A state government spokesman said 101 people were killed and 314 injured. Eight militants were also killed.

A senior police officer said at least three top Indian police officers - including the chief of the anti-terror squad - were killed in an attack on the police headquarters in southern Mumbai.

The motive for the attacks was not immediately clear, but Mumbai has frequently been targeted in terrorist attacks blamed on Islamic extremists, including bombings in July 2006 that killed 187 people.

The most high-profile target last night was the Taj Mahal Palace and Tower hotel, a landmark of Mumbai luxury since 1903, and a favourite of the city's elite.

The attackers, dressed in black shirts and jeans, stormed into the hotel at 9.45pm local time and opened fire indiscriminately.

The shooting was followed by explosions that set fire to parts of the century-old edifice on Mumbai's waterfront. Screams were heard and black smoke and flames billowed, continuing to burn until dawn.

The gunmen also seized the Mumbai headquarters of the ultra-orthodox Jewish outreach group Chabad Lubavitch and attacked the five-star Oberoi Hotel.

The gunmen appeared to be still inside all three buildings today - nearly 18 hours later - holding foreign and local hostages, as Indian commandos surrounded the buildings.

Among those held captive were Americans, British, Italians, Swedes, Canadians, Yemenis, New Zealanders, Spaniards, Turks, a Singaporean and Israelis.

Police loudspeakers declared a curfew around the Taj Mahal hotel, and black-clad commandos ran into the building as gunshots rang out from the area.

Soldiers outside the hotel said the operation would take a long time as forces were moving slowly, from room to room, looking for gunmen and booby-traps.

Every victim found dead had to be checked by sniffer dogs, said one senior officer.

Some bodies were carried out from the building and several hostages slowly emerged.

Around a dozen hostages, including foreigners, were evacuated from the hotel and put in an ambulance.

At the nearby Oberoi hotel, soldiers could be seen on the roof of neighbouring buildings. A banner hung out of one window read "save us".

Later the Indian Navy said it was boarding a cargo ship suspected of ties to the attacks.

A spokesman said the MV Alpha had recently arrived at Mumbai from Karachi, Pakistan.

"The navy has located the ship and we're in the process of boarding it and searching it," he said.

Rubber dinghies were found by the shore, apparently used by the gunmen to reach Mumbai, which lies on the west coast of India overlooking the Arabian Sea.