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.”
- Not just for Christmas: The heroic work of Estepona’s Adana kennels - 8 Jan, 2017 @ 10:23
- Bambi on ice - 1 Jan, 2017 @ 16:01
- Cars banned from Madrid streets in trial run for pedestrianised city - 25 Dec, 2016 @ 16:54
- Gang of thieves gas and rob expat homes on Costa del Sol - 22 Dec, 2016 @ 09:14
- Spain boosts security in ‘Christmas hotspots’ following Berlin attacks - 21 Dec, 2016 @ 15:31
- Flood advice: How to claim on insurance following Costa del Sol deluge - 21 Dec, 2016 @ 13:25
- PIC EXCLUSIVE: Britain’s Most Wanted fugitive Mark Acklom strips off in Spain - 21 Dec, 2016 @ 11:05
- Prime Minister Theresa May vows to protect 1.2 million British expats living in Europe - 21 Dec, 2016 @ 09:51
- Britain’s Captain Calamity stranded in Spain after leaving passport onboard abandoned vessel - 20 Dec, 2016 @ 12:43
- Woman from Granada named best rugby referee in the world by IRFU - 20 Dec, 2016 @ 10:36