Gunmen blew up a car bomb, sprayed gunfire in a crowded area and took hostages in a shopping mall in eastern Baghdad Monday, killing at least eight people, police said.

The gunmen were still holed up in the shopping centre in Baghdad al-Jadida, a police colonel said, adding that it was feared the attackers were wearing suicide belts.

A hospital official confirmed the death toll and said 14 people were also reported to have been wounded in the attack.

‘They are inside the Zahrat Baghdad mall. When the security forces got too close, they killed three hostages,’ a police official said.

‘We are taking a cautious approach now. We want this attack to end with the lowest possible number of casualties,’ the official said.

He described the mall as a building of four or five floors in a busy commercial area of Baghdad al-Jadida, a populous Shia-majority area on the eastern edge of the Iraqi capital.

A large plume of black smoke could be seen billowing into the sky above the area where the mall is located.

An interior ministry source said an unspecified number of gunmen opened fire in the street after a car bomb exploded and briefly clashed with members of the security forces before entering the mall.

‘They completely control the mall right now, they have men on the roof,’ the official said.

Police said a counter-terrorism force from the intelligence services was on the scene and snipers posted on buildings around the mall.

There was no immediate claim of responsibility for the attack but a police source described the gunmen as ‘wearing Daesh-style clothes’.

Daesh is an Arabic acronym for the Islamic State jihadist group that occupies parts of the country and is responsible for the vast majority of suicide attacks in Baghdad.

The group has carried out dozens of suicide car bomb attacks but Monday's hostage-taking would be the first of its kind since IS seized control of large parts of Iraq in 2014.