Early on Friday morning, sporadic gunfire and explosions continued at a Jewish centre where at least 10 Israelis were trapped or being held hostage.

Police said militants were also still holed up at the Taj Mahal hotel and the nearby Oberoi-Trident hotel along with an unknown number of hostages.

Prime Minister Manmohan Singh pinned blame for the attacks on militant groups based in India's neighbours, usually an allusion to Pakistan, raising prospects of renewed tension between the nuclear-armed rivals.

He warned of "a cost" if these nations did not take action to stop their territory being used to launch such attacks.

An estimated 25 men armed with assault rifles and grenades -- at least some of whom arrived by sea -- fanned out across Mumbai on Wednesday night to attack sites popular with tourists and businessmen, including the city's top two luxury hotels.

Police said at least seven of the attackers were killed and nine suspects had been taken into custody. They said 12 policemen were killed, including Hemant Karkare, chief of the police anti-terrorist squad in Mumbai.

At least six foreigners, including one Australian, a Briton, an Italian and a Japanese national, were killed. Scores of others were trapped in the fighting or were being held hostage.

More than 300 people were wounded.

Commandos battled the militants through Thursday, often room to room in the hotels, to rescue people, police said. Flames billowed out of the buildings and loud explosions were heard during the fighting.

Mumbai, a city of nearly 18 million people that is the nerve-centre of India's growing economic prowess and home to the "Bollywood" film industry, was virtually shut down on Thursday as the battles raged.

But in a reflection of the poverty that sits cheek-by-jowl with the upmarket shops and restaurants in the city, hundreds of people were stretched out asleep on pavements and handcarts near the scenes of fighting.

The sea-facing Marine Drive in front of the Oberoi-Trident is a favoured spot for early morning walks, and some regulars came out for their constitutional despite the tension.

"I hear they (the security forces) have relaxed the rules a little so I came for my morning walk but I did not see any of the regulars," said Raja Ram Patil, 54, a local businessman.

British Prime Minister Gordon Brown said the attack would be met with a "vigorous response".

U.S. President-elect Barack Obama condemned the incident. Obama, who favours a regional solution to the war in Afghanistan and is encouraging Pakistan and India to make peace over Kashmir, was monitoring the situation closely, an aide said. [nLR502129]

The Times of India published a photograph of one of the attackers, dressed in a black T-shirt and holding an assault rifle with a backpack over his shoulder.

At least some of them had come ashore in what police said was a rubber dinghy. They commandeered a vehicle and sprayed passersby with bullets, and fired indiscriminately in a train station, hospitals and a popular tourist cafe.

ANTI-TERRORIST COP

"The situation is still not under control and we are trying to flush out any more terrorists hiding inside the two hotels," said Vilasrao Deshmukh, chief minister of Maharashtra.

The death toll was only an estimate in an attack which brought the biggest chaos to the city since serial bombings in 1993 killed 260 people and injured hundreds.