At least 80 people have been killed in attacks apparently aimed at tourists in India's financial capital Mumbai.
Television channels said westerners were being held hostage at two five-star hotels.
Troops began moving into one of the hotels, the Oberoi, local television said.
Explosions were heard there and at the Taj Mahal hotel, where tourists were also said to have been taken hostage, CNN/IBN television reported.
Police said at least 250 people were wounded in the series of Mumbai attacks which, apart from the hotels, targetted hospitals and railway stations as well as the Café Leopold, perhaps the most famous restaurant and hang-out for tourists in the city.
An organization calling itself the Deccan Mujahideen claimed it was behind attacks, television channels said.
The previously little known group sent an email to news organizations claiming responsibility.
India has suffered a wave of bomb attacks in recent years.
Most have been blamed on Islamist militants, although police have also arrested suspected Hindu extremists thought to be behind some of the attacks.
Hemant Karkare, the chief of the police anti-terrorist squad in Mumbai, was killed during the attacks, police said.
In Washington, the White House condemned the attacks.
France, current president of the European Union, also condemned the attacks and hostage-takings.
A European official was among the wounded.
Indian Home Minister Shivraj Patil said there were around four or five attackers in each of the two hotels.
'They have attacked hotels, they have attacked the hospitals, they have attacked the railway station,' he said, adding that two attackers had been killed and two arrested.