Baghdad security spokesman Major General Qassim al-Moussawi said five attackers were killed during the rescue operation as well as one policeman and one church-goer. Twenty people were wounded, he said.

"The operation has finished successfully," he told Reuters.

U.S. military officials, who watched the rescue operation from cameras in hovering helicopters, confirmed the report.

"They (Iraqi forces) went into the church and rescued the hostages," Army spokesman Lt. Col. Eric Bloom said. "They have control of the church."

As the operation unfolded, military helicopters flew low overhead and gunfire rang out through the residential Karrada district near the heavily fortified Green Zone, home to many embassies and the Iraqi government.

Younadam Kana, a Christian lawmaker, said that parishioners who had called him from inside the church had estimated that the gunmen had taken more than 50 hostages -- an estimate confirmed by other sources.

A federal police source said the attackers were demanding the release of al-Qaeda prisoners, including the widow of Abu Omar al-Baghdadi, the late head of al-Qaeda's Iraqi umbrella group, the Islamic State of Iraq, who was killed in April.

In a call to al-Baghdadiya television station, a man who claimed to be one of the attackers said the group also wanted al Qaeda prisoners released in Egypt.

Violence has fallen sharply in Iraq since the height of sectarian bloodshed in 2006-07 which was triggered after the 2003 U.S.-led invasion.

But attacks by Sunni Islamist insurgents linked to al-Qaeda and Shiite militia continue on a daily basis.

The failure of Iraqi leaders to agree on a new government almost eight months after an inconclusive election has stoked tensions just as U.S. forces cut back their presence and end combat operations ahead of a full withdrawal next year.

The attack on Sunday evening began with at least one loud explosion followed by bursts of gunfire. Streets around the Assyrian Catholic church were quickly cordoned off.

Some police sources said they believed the initial target was the nearby Iraqi stock exchange, a bourse that lists a couple dozen local companies.