Two people have reportedly been killed while a further seven have been injured.
Fighting continues at the scene where three men are reportedly locked in a gunfight with police.
Another man is believed to have blown himself up in the car outside the embassy.
The terrorist organisation has said it launched the attack on a Spanish embassy guest house, in its quest to rid the capital of ‘invaders’.
A Spanish official from inside the building confirmed that the building had been secured.
“We are under pressure, but we are OK,” he said. “The situation is still going.”