Police spokesman Sadiq Adan Ali said, cited by the newspaper on Monday, that a car loaded with explosives crashed into the hotel entrance on Sunday afternoon. Armed gunmen stormed the hotel following the explosion, opening fire inside the building.
The Canberra Times said at least 17 people were killed and the death toll could still rise.
Police have reportedly managed to rescue some people from the hotel, including the owner and an army general.
The Al-Shabab radical Islamist group affiliated with al-Qaeda (banned in Russia), has claimed responsibility for the Sunday attack on the Afrik Hotel. The location is popular with government officials and journalists.