Prime Minister Tony Abbott has appealed to Australians to “go about their business as usual” as a gunman holds a group of people hostage in the Lindt cafe in Martin Place, Sydney.

After a meeting of cabinet’s National Security Committee, which was briefed on latest developments, Abbott told a news conference in Canberra that he wanted to assure people that the “ordinary business of government must go on and it will go on”.

The government had been due at 12.30pm to release its Mid-Year Economic and Fiscal Outlook (MYEFO), but it was delayed for Abbott’s appearance. The press conference has been rescheduled for 1.30pm.

The area around Martin Place is in lockdown as New South Wales and Australian Federal Police poured into the area.

People in the cafe were seen with their faces pressed to the windows and their hands above their heads. Media reports have shown a black flag with white writing in Arabic, which has been translated as “there is no God but Allah” and “Mohammed is the messenger of God”, was held up to a window by people thought to be hostages.

The Sydney Opera House was also evacuated.

Abbott said that the motivation of the perpetrator was not known. “We don’t know whether this is politically motivated, although obviously there are some indications that it could be.

“We have to appreciate that even in a society such as ours, there are people who would wish to do us harm. That’s why we have police and security organisations of the utmost professionalism that are ready and able to respond to a whole range of situations and contingencies including this situation we are now seeing in Sydney.”

He said the whole point of politically motivated violence was to “scare people out of being themselves.

“Australia is a peaceful, open, and generous society. Nothing should ever change that and that’s why I would urge all Australians today to go about their business as usual.”

He said if anyone had suspicions of untoward activity they should call the national security hotline on 1800 123 400.

Abbott said this was a “very disturbing incident” and he could understand the anxieties of Australians at such a time. “Our thoughts and prayers must above all go out to the individuals who are caught up in this. I can think of almost nothing more distressing, more terrifying than to be caught up in such a situation.”

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.