Bangladesh's Prime Minister Sheikh Hasina has pleaded with extremists to stop killing in the name of religion.

"Islam is a religion of peace. Stop killing in the name of the religion," said Hasina after 20 hostages were murdered by Islamist terrorists at a restaurant in Dhaka.

Calling for everyone in Bangladesh to work together to combat extremism, she continued: "Please stop tarnishing our noble religion. I implore you to come back to the rightful path and uphold the pride of Islam."

She declared two days of mourning as she addressed the nation on television.

Twenty-two people, two of them police officers, were murdered during the terrorist attack on Holey's artisan bakery when seven gunmen wielding firearms, bombs and swords took all the customers hostages. The victims were held for 13 hours until the army led a rescue attempt, freeing 13 hostages. Six terrorists were killed during the rescue and one is in custody.

The dead included Simona Monti, the sister of an Italian priest, who was expecting a baby in two months, US citizen Abinta Kabir, aged just 19, a student at Emory University, and Nadia Benedetti, managing director of London-baed company StudioTex.

According to the BBC, the attackers were not students from Islamic madrassas or seminaries but come from well-to-do families and studied in private schools and universities.

It is believed the restaurant was targeted because it was known to be popular with foreigners.

Hasina urged communities to set up anti-terrorism committees across Bangladesh, which she said was the victim of an attempt to ruin its reputation. 

"By holding innocent civilians hostage at gunpoint, they want to turn our nation into a failed state," she said.

"Anyone who believes in religion cannot do such acts. They do not have any religion, their only religion is terrorism." 

The physician and author Taslima Nasreen was among those who responded.

She tweeted that Bangladesh had degenerated into an Islamic fundamentalist country. 

She also said: 

Earlier she tweeted: