Indian Prime Minister Manmohan Singh suggested the group behind the terrorist attacks, which killed 125 people, was based outside the country.
CNN reporters said regular gun fire and blasts could be heard at the Oberoi and Taj Mahal hotels and a Jewish center in the city.
According to the same report, witnesses heard gunfire as well, hostages were taken.
A fire from earlier billowed smoke through one of the hotel's windows, as firefighters poured water over the plumes.
A few blocks away, at the Hotel Oberoi, a major fire raged Thursday night through one floor there, CNN's sister network in India, CNN-IBN, said.
The network reported 30 people were trapped, and said gunshots could be heard. Later, an explosion was heard from the hotel's rear side.
At least three or four terrorists are still holding hostages in both the Taj Mahal and Oberoi hotels, British officials told CNN on Thursday.
Meanwhile, Singh suggested the group behind the attacks probably had "external linkages."
"It is evident that the group which carried out these attacks, based outside the country, had come with single-minded determination to create havoc in the financial capital of the country," he said.
The Foreign Ministry opened up a situation room, news via YNet:
The Foreign Ministry has open it's situation room following Wednesday's terror attack in Mumbai, India.
Sixteen people were killed in an apparent series of firing incidents and blasts in Mumbai. No Israelis were reported among the casualties. The situation room can be reached at 972-2-5303155.
The Times of India gives more details:
In one of the most violent terror attacks on Indian soil, Mumbai came under an unprecedented night attack as terrorists used heavy machine guns, including AK-47s, and grenades to strike at the city's most high-profile targets -- the hyper-busy CST (formerly VT) rail terminus; the landmark Taj Hotel at the Gateway and the luxury Oberoi Trident at Nariman Point; the domestic airport at Santa Cruz; the Cama and GT hospitals near CST; the Metro Adlabs multiplex and Mazgaon Dockyard -- killing at least 101 and sending hundreds of injured to hospital, according to latest reports. ( Watch )
The attacks have taken a tragic toll on the city's top police brass: The high-profile chief of the anti-terror squad Hemant Karkare was killed; Mumbai's additional commissioner of police (east) Ashok Kamte was gunned down outside the Metro; and celebrated encounter specialist Vijay Salaskar was also killed. ( Watch )
The attacks appeared to be aimed at getting international attention as the terrorists took upto 40 British nationals and other foreigners hostage. The chairman of Hindustan Unilever Harish Manwani and CEO of the company Nitin Paranjpe were among the guests trapped at the Oberoi. All the internal board members of the multinational giant were reported to be holed up in the Oberoi hotel.
Times of India say the number opf injured could be as high as 900.
It also appears that British and American citizens were heavily targeted and one of the reasons the attackers had the ability to do so much damage could be the fact that the witnesses are saying they were "very young, like boys really, wearing jeans and T-shirts."
“They said they wanted anyone with British and American passports and then they took us up the stairs. I think they wanted to take us to the roof,” he said. He and another hostage managed to escape when they reached the 18th floor, he said.
Hot Air points to a Google map page, via Danger Room, showing how spread out the attacks were and a Flickr page with photos.
The Deccan Mujahideen is claiming credit for this organized unprecedented attack an d Weekly Standard has more on that group.
There are still a lot of questions about how any group could organize an attack of this magnitude with ten separate sites and as more information comes out, I will update.
[Update] Haaretz reports that although it is unlcear what the hostage takers want, they are continuing with hostage negotiations, moving slowly to try to save as many as possible.
One man, a who identified himself as a Pole but did not give his name, told reporters he had seen many bodies inside, but refused to give more details, saying he had promised the police not to discuss details of the rescue operation.
The Maharashtra state home ministry said 84 people had been freed from the Oberoi - 60 of them hostages - and dozens more were still trapped inside.
Police said they were going slowly to protect the captives.
Among the dead were at least one Australian, a Japanese and a British national, said Pradeep Indulkar, a senior government official of Maharashtra state. An Italian and a German were also killed, according to their foreign ministries.