Gunmen used a vehicle packed with explosives to blast their way into the Sahafi hotel compound before storming the building, police said.
Victims included at least one MP and the general who led the 2012 offensive that drove al-Shabab out of Mogadishu.
African Union troops and government forces say they have regained control of the hotel after a fierce gun battle.
The hotel is popular with Somalia's members of parliament.
A website associated with al-Shabab claimed responsibility, saying that fighters from the al-Qaeda-linked group had infiltrated the hotel after an explosion.
The owner of the hotel and Gen Abdikarim Dhagabadan, who commanded the operation against al-Shabab in 2012, were among the victims.
The attack comes a day after deadly clashes between jihadist fighters and African Union (AU) troops in the Bakool region near the border with Ethiopia.
The AU is helping the government battle al-Shabab.
Security in Somalia has improved, but al-Shabab still attacks Mogadishu regularly.
The militants have also targeted neighbouring countries, killing almost 150 people in an assault on Garissa University College in Kenya in April.
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