Bangladesh began two days of national mourning Sunday after 20 hostages were slaughtered at a restaurant as the government insisted the attackers were homegrown ’jihadists’ and not followers of the ISIL group.

Bangladesh began two days of national mourning Sunday after 20 hostages were slaughtered at a restaurant as the government insisted the attackers were homegrown 'jihadists' and not followers of the ISIL group.

Prime Minister Sheikh Hasina decreed the mourning period as she vowed to drag Bangladesh back from the brink, warning of a concerted bid to turn one of the world's most populous nations into a failed state.

Amid mass condemnation of the killings in Dhaka, whose victims included 18 foreigners, the ISIL group said it had targeted a gathering of "citizens of crusader states" on Friday night at a Western-style cafe.

But a government minister insisted the killers, six of whom were gunned down at the end of the siege, were members of a homegrown militant outfit and had no links to international 'jihadist' networks.

"They are members of the Jamaeytul Mujahdeen Bangladesh," Home Minister Asaduzzaman Khan told AFP, referring to a group which has been banned in Bangladesh for more than a decade.

"They have no connections with the ISIL."

As well as the 20 slain hostages whose bodies were found amid pools of blood after commandos stormed the cafe to end the siege, two policemen were also shot dead in a fierce gun battle at its outset.

Six gunmen were shot dead by the commandos at the final stages of the siege at the Holey Artisan Bakery cafe but one of the hostage-takers was taken alive and was being interrogated by Bangladeshi intelligence.

Security officials said most of the victims were slaughtered with sharpened machete-style weapons.

Hasina's government has previously blamed a string of deadly attacks against religious minorities and foreigners on domestic opponents but the latest will heighten fears that ISIL's reach is spreading.

"Islam is a religion of peace. Stop killing in the name of the religion," Hasina said in an impassioned televised address to the nation.

The 68-year-old premier said the people behind the attacks were trying to ruin Bangladesh, a mainly Muslim nation of 160 million people.

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