Mali's state broadcaster reported that 80 of the hostages have been released with commandos going floor to floor inside the Radisson Blu Hotel. Later, the company who owns the hotel said in a statement that 125 guests and 13 employees were still in the building.
"The attackers are still inside. We're hearing gunfire from time to time," a witness outside the Radisson told the Reuters news agency.
Gunman shouting "Allahu Akbar" earlier on Friday opened fire outside the luxury hotel in the centre of the capital before storming it.
Reports said they drove up in vehicles bearing diplomatic licence plates, thereby gaining easy access.
"About 10 gunmen arrived early in the morning and shot all the guards in front of the Radisson," business owner Garba Konate told Al Jazeera.
Another witness said he helped a wounded guard to safety.
"I started hearing gunshots coming from the hotel," said Ibrahim, 28, who works at a cultural centre 40 metres away.
"Soon after I saw one of the guards running out, injured... The security guard told me the shooters were so quick that he doesn't even know how many came in," he told Al Jazeera.
Heavy gunfire could be heard from outside the 190-room hotel where security forces had set up a cordon.
A well-known Guinean singer who was in the hotel told Reuters he had heard the gunmen speaking English.
"I heard them say in English 'Did you load it?', 'Let's go'," Sékouba 'Bambino' Diabate, who was freed by Malian security forces, said. "I wasn't able to see them because in these kinds of situations it's hard."
Idrissa Sangare, a local journalist at the scene, told Al Jazeera that Malian special forces, French troops and UN soldiers were working together in front of the hotel.
"We don't know who carried out the attack because the operation is still going on," Sangare said. "We're hearing sporadic gunfire. There are a lot of injured people inside the hotel, I'm being told - more than 40 people."
UN officials were holding a function at the hotel, he reported.
Sangare said he saw more than a dozen hostages exiting the Radisson in groups of two and three. Some witnesses told the media that several hostages were released by the attackers after reciting verses from the Quran.
About 20 Indian nationals were inside, India's foreign ministry spokesman Vikas Swarup said in a tweet.
Seven Chinese nationals were also being held, state news agency Xinhua said.
Turkish Airlines staff were also among those captured. The company said in a statement that six crew members have been freed, but one employee remained inside the hotel, AP reported.
French nationals were also among those in the siege, a source in France's president's office told Reuters. Air France tweeted that 12 crew members who were inside escaped and were safe.
The hotel owners said it was "aware of the hostage-taking that is ongoing at the property today ... As per our information, two persons have locked in 140 guests and 30 employees," the company said in a statement.
Both the US and French embassies told their citizens to take cover and stay indoors.
Armed groups have continued to wage attacks in Mali despite a June peace deal between former Tuareg rebels in the north of the country and rival pro-government armed groups.
Northern Mali fell in March-April 2012 to al-Qaeda-linked groups long active in the area, before being taken by a French-led military operation launched in January 2013.
Despite the peace deal, large swathes of Mali remain beyond the control of government and foreign forces.