President Hamid Karzai ordered an urgent security upgrade for international organisations after the rampage, which left at least five expatriate UN staff dead in the worst assault on the world body’s Afghanistan mission since 2001.

A defence ministry official said the raid was the work of Pakistani Taliban dressed as police who struck the UN-approved Bekhtar Guesthouse before dawn.

Witnesses said the militants sprayed the hostel with gunfire and detonated grenades before blowing themselves up.

"I condemn in the strongest possible terms the despicable and brutal killing, for which the Taliban has claimed responsibility in an apparent effort to disrupt the second round of the presidential elections," said UN chief Ban Ki-moon.

"The United Nations remains committed to continue its work in the country."

A UN spokesman in Kabul said five expatriate staff were confirmed as having died while forensic tests would be carried out on the remains of sixth person. The American embassy identified one as a US citizen.

Two security personnel were also killed, bringing the total death toll to eight, plus the three gunmen.

Another nine UN staff were wounded as gunfire and explosions rang out across the city in a smart residential district close to popular shopping streets.

Militants also fired rockets at the luxury Serena Hotel but no casualties were reported.

Officials said three gunmen entered the hostel in Kabul’s Shar-e-Now district around dawn as the guests were sleeping.

An American contractor staying at the hostel said two of the dead were women and described scenes of panic during a more than two-hour siege.

"One suicide bomber killed one of the women just as she was trying to get through the fire. He blew himself up," John Christopher Turner told reporters.

Another woman was overcome by smoke from the explosions.

"The smoke was just choking… (She) was crying, yelling: ‘I am dying,’" said Turner, 62, from Kansas. "I barely made it myself."

Turner said he himself opened fire with a rifle as many guests took shelter in a washroom before escaping through the back of the building.

"I just guarded the people in the washroom and just returned fire really at nothing but just to let them know.

Captain Daoud Safi, an officer in the Afghan defence ministry, captured the raid’s bloody conclusion on his camera phone.

"They were Pakistani students who came here for suicide training," said Safi as he showed grainy footage of the mangled bodies dressed in police uniforms.

Although a police commander said the attackers had been shot dead, one witness said it was clear they had detonated themselves.

"There were intestines everywhere, legs were blown off," said the woman.

The new bloodshed came with tensions rising in Afghanistan ahead of the scheduled presidential run-off on November 7 between Karzai and former foreign minister Abdullah Abdullah, following a fraud-tainted first round in August.

Taliban spokesman Zabihullah Mujahed said the militia, driven from power in a US-led invasion eight years ago, was behind the raid.

"This is the first step, as we have warned that we will disrupt the second round of the elections," he told AFP.

The Taliban have called for a boycott of the ballot, threatening a repeat of the violent intimidation they waged ahead of the August election.

The attack came as US Secretary of State Hillary Clinton visited neighbouring Pakistan, seeking to bolster the nuclear-armed state on the frontlines of the struggle against Taliban and Al-Qaeda militants.

The threat was laid bare as a car bomb ripped through a bazaar in the northwest Pakistani city of Peshawar, killing 92 people.

US President Barack Obama has vowed to meld the Afghan and Pakistani theatres in one combined approach.

After an exhaustive review of war strategy, Obama may select a plan to secure 10 major Afghan population centres rather than going for an all-out military push, the New York Times reported.

Sardar Ahmad/AFP/Expatica