New Delhi  - Indian forces late Thursday continued flushing out gunmen from a posh hotel in Mumbai, the financial hub where scores remained trapped 24 hours India's most brazen terrorist attack ever, with a death toll of at least 125.

Among the terrorists' targets were five-star hotels the Taj and the Oberoi Trident, plus Mumbai's busiest railway station, hospitals, police headquarters in south Mumbai, a Jewish centre and a restaurant popular with foreigners.

Police in Mumbai, capital of Maharashtra state, said the death toll in the attacks had mounted to 125 by Thursday night, with more of the wounded succumbing to injuries, along with the recovery of more bodies from hotels. More than 320 people including 22 foreigners were wounded.

Eight foreigners were among those killed but were not yet identified.

Governments and companies confirmed that an Italian, a German, a Japanese, an Australian and a Briton were among the victims. Fourteen police including four senior officers were also slain in clashes with the terrorists.

Late Thursday, senior security personnel announced that only two terrorists remained to be captured or killed in the Oberoi Trident Hotel, while a wounded terrorist was holed up in the Taj.

The siege at the Taj Hotel was nearly over after an unspecified number of militants were killed and all people evacuated from the iconic hotel.

In a related development, three terrorists - including a Pakistani national belonging to Pakistan-based militant group Lashkar-e-Toiba - were captured at the Taj Hotel, the PTI news agency reported.

Commandos were preparing an assault on the Oberoi Trident, where up to 35 people including foreigners could have been kept captive by two terrorists, the NDTV network reported.

NSG Director General JK Dutt told reporters that the Taj Hotel will be declared fully cleared of the terrorist threat after a wounded gunman, who was still at large in the premises, was tracked down.

Gunshots and grenade blasts could be heard at the Taj and Trident Thursday evening as smoke billowed from fresh fires set off when commandos engaged with the terrorists to bring the hostages to safety.

The encounter between the troops and terrorists intensified in the Trident when nearly 50 rounds of gunfire were exchanged. Through Thursday evening, 40 of the 200 people trapped inside the hotel were rescued.

Late Thursday, seven hostages were released from the Nariman House, headquarters of the ultra-orthodox Jewish community Chabad Lubavitch, where terrorists had taken some Israeli nationals hostage, NDTV reported.

Television images showed seven hostages walking out of the Nariman House, but it was unclear whether they were freed or escaped.

They were whisked away for questioning by security forces, and there was no word on their nationalities. Commandos had circled the complex, indicating that some militants could be holed up inside the building.

The Israeli embassy earlier Thursday said that 10 to 15 Israelis had been taken hostage, some of them in the Trident Hotel, while 25 others were unaccounted for.

Maharashtra Chief Minister Vilasrao Deshmukh said that operations could continue overnight Thursday and into Friday morning if necessary. He maintained that there were no hostage-like situations in the hotels, where guests had locked themselves in their rooms for safety.

Indian Prime Minister Manmohan Singh, in a televised address to the nation, said that the attacks were well-planned and well- orchestrated and were intended to create panic by choosing high- profile targets and indiscriminately killing foreigners.

He said the terrorists likely had foreign links, and it was evident that the group responsible for the attacks was based outside India.

A little-known organization called the Deccan Mujahideen claimed responsibility in e-mails sent to local news agencies.

Police said 20 to 22 terrorists had come in a mother vessel to a nearby dock, where they transferred to inflatable high-speed boats that took them right up to the famous Gateway of India monument, located on the edge of the Arabian Sea directly across from their targets.

At least seven of the attackers were killed, while some suspects were arrested and at least 10 were at large, news reports said.

The highest profile target was the 105-year old Taj hotel, popular with the influential and wealthy locals and visitors alike.

A group of terrorists stormed into the hotel around 9:30 pm Wednesday, firing indiscriminately. Several people were killed, including 15 staff members, who made heroic efforts to ensure the safety of guests, the hotel management said.

Gunmen also attacked the Trident hotel, where they are believed to have taken hostages. In both hotels the gunmen spread out, making operations against them difficult, NDTV reported.

Maharashtra Police Chief AN Roy said the operation was time- consuming due to considerations of the security of guests at the Trident.

At the Taj, security forces carried out a room to room search. At least six bodies and several hostages emerged from the hotel and were carried away by ambulances during the day.

South Mumbai looked deserted Thursday with most offices closed. Markets and theatres were shut, as were schools, colleges and the stock markets.

The government has advised people to stay away from markets and theatres as some terrorists could still be at large, IANS news agency reported. Hotels have been advised not to take new guests.

Indian Premier Singh visited wounded victims Thursday night in local hospitals and later took stock of the security situation in Mumbai with senior ministers.

The financial hub, with an estimated population of 19 million, has been the target of terrorists in the past. More than 180 people were killed in serial bombings on Mumbai's busy suburban rail network on July 11, 2006.

On August 25, 2003, two car bombs killed 60 people, and another bomb attack on a commuter train in March 2003 left 11 people dead.

India is among the countries worst-affected by terrorism. More than 600 people have died in India as a result of terrorism since 2003.

Wednesday's attacks were unprecedented in both scale and precision, police officials said. Junior Home Minister Sriprakash Jaiswal described the situation as a "wartime emergency." (dpa)