Seven Network staff are sheltering inside the media company's Martin Place headquarters as a hostage drama unfolds at a nearby cafe.
The Morning Show co-host Kylie Gillies said police had locked down the Seven building at 52 Martin Place in Sydney's CBD, right across from the Lindt Chocolat Cafe.
She was sheltering with about 40 other Seven staff members.
"It's quite tense," Ms Gillies said.
"Our first thoughts, of course, are with the customers and staff at Lindt, and their families.
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"We can see them and we can see the fear in their eyes."
She said Martin Place was now cordoned off and "eerily empty" of pedestrians.
"There's a heavy police presence," she said.
"We're all praying for a peaceful outcome."
Ms Gillies told AAP she saw the situation unfold "live on air" from about 9.45am.
"Marlisa (Punzalan) from XFactor was on live on our show and Larry (Emdur) and I turned around and looked out the window and there were all these cops running around," she said.
"Larry and I broadcast for the next 40 minutes as the events unfolded.
"It was so scary to see the hostages standing at the window with their arms up to the glass."
The lockdown means Seven's coverage of the siege is being telecast via Melbourne.
The Martin Place studio is Seven's main newsroom and home to breakfast show Sunrise and The Morning Show.
A Seven representative says one of its news reporters, who is an expert in terrorism, has identified the flag being held up in the window.
"One of the reporters believed it was an al-Qaeda flag," he said.
Seven Network producer Patrick Byrne said staff watched the drama out their windows.
"Our editorial meeting was interrupted this morning when we heard reports that police were in Martin Place carrying shotguns," he said in an interview carried on the ABC.
"We all raced to the window and there we saw the shocking and chilling sight of people putting their hands up agains the panes of glass at the cafe."
