Somalia-based Al Shabaab has claimed responsibility for the attack at a hotel and office complex in a leafy Nairobi neighbourhood.
The attackers forced their way into 14 Riverside Drive by shooting at guards. They also hurled explosives into vehicles nearby and went into Dusit D2 Hotel, the police said.
"There was a bomb, there is a lot of gunfire," a man working in the offices in the Dusit Hotel compound told AFP, asking not to be named.
The Riverside attack comes exactly three years after a Kenyan army base in Somalia was overran by the militants killing dozen soldiers.
"We are currently conducting an operation in Nairobi," the group's military operations spokesman told Al Jazeera.
More to follow