• Suspected Islamist fighters raid UN-frequented hotel
• Military says three Russians kidnapped, embassy denies
• South Africans, French, Ukrainians thought staying there

 Reuters/ Bamako

Suspected Islamist militants attacked a hotel in central Mali used by United Nations staff on Friday, killing at least five people and exchanging fire with troops encircling the building, residents and military sources said.

Malian military officials also said three Russian pilots were believed to have been kidnapped during the attack, though the Russian embassy in Mali, speaking to the TASS press agency, denied this.

The attack well south of the Saharan desert strongholds of Islamist militants highlights the threat posed by remnants of an al Qaeda-linked insurgency that appears to be stepping up its campaign against Malian and U.N. troops.

Smoke rose from the hotel and heavy weapons fire was heard as government forces moved in to dislodge the gunmen, who stormed the building near the airport in Sevare, around 600 km (400 miles) northeast of the capital Bamako, before 8 a.m. (0800 GMT).

The body of a white male victim was visible in front of the hotel, a witness said. Four Malian soldiers died in the clashes and three others were wounded, military officials said. Two attackers, one strapped with explosives, also died.

Military spokesman Souleymane Dembele said an east European and three other personnel from the MINUSMA U.N. peacekeeping operation were believed to have escaped from the hotel. Nationals from South Africa, France and Ukraine were thought to have been staying there, he said.

Five hostage takers were believed to be inside the building, he added.

 Locals hide

 A 2013 French-led military operation succeeded in driving Islamist fighters out of cities and towns seized a year earlier in the west African nation's desert north. MINUSMA was then deployed to maintain precarious stability.

"People in the area are hiding in their houses. The attackers are still inside the hotel," a Sevare resident said, adding he could hear heavy gunfire and the explosions of rocket-propelled grenades. "I see the smoke from the hotel," he said.

MINUSMA spokeswoman Radhia Achouri confirmed that gunmen had entered a hotel in Sevare but would not comment on the possible presence of U.N. peacekeepers or officials.

"There was gunfire from early this morning and the situation continues. The Malian army is retaliating and reinforcing their position," she said.

Ansar Dine, a Malian group with links to al Qaeda, last month claimed responsibility for a series of attacks on U.N. peacekeepers and the Malian army in Bamako and areas near the Ivory Coast and Mauritania borders.

Suspected militants killed 11 soldiers in a raid on an army base near the ancient northern city of Timbuktu on Monday. A military spokesman said on Thursday five people had been arrested in connection with the attack.