UN peacekeepers say they saw at least 27 bodies in the Radisson Blu hotel in the capital Bamako.
Wounded civilians were yesterday evening being evacuated from the hotel, popular with airline staff, Western tourists and local dignitaries.
Some of the gunmen remain dug in on the upper floors of the hotel but they are no longer believed to be holding hostages.
State television showed footage of troops in camouflage fatigues wielding AK47s in the lobby of the hotel, one of the country's smartest.
In the background, a body lay under a brown blanket at the bottom of a flight of stairs.
They were shouting and screaming "Allahu Akbar", which means "God Is great" in Arabic.
Witnesses reported seeing some of the men approach the hotel in a car, wearing dark suits and sunglasses.
They opened fire on security guards before raiding the building.
More than 150 people were originally taken hostage by the attackers.
The Malian forces moved "floor by floor" rescuing people, assisted by elite US and French troops, witnesses said.
Among the dead are thought to be a Belgian local government official, according to a source.
Geoffrey Dieudonne had been in Mali for a convention, a parliament spokesman told Belga news agency.
Two security guards have been injured in the assault.
At least two gunmen are among the dead, a Malian military source said.
One of the freed hostages, a singer from Guinea, said he heard attackers in the next room speaking English.
"I heard them say in English 'Did you load it?', 'Let's go'," Sékouba 'Bambino' Diabate told Reuters.
The Radisson Blu's head of security said the attackers arrived in a large vehicle and forced their way through a security barrier.
A security source said 20 hostages were released by the gunmen after being made to recite verses from the Koran.
Two women told an AFP journalist they had seen the body of a fair-skinned man lying on the floor of the hotel.
Turkish Airlines said seven of its staff were among the hostages, but five including two pilots had managed to escape.
Air France said it had 12 crew in the hotel but all were safely "extracted". As a precaution it has cancelled Friday's flights to and from Bamako.
The hostages also include 20 Indians, seven Algerians, six Americans and two Germans who have all been rescued along with three of 10 Chinese nationals.
The owners of the hotel, which attracts many foreign visitors, originally said 140 guests and 30 employees had been "locked in" by two raiders.
The Rezidor Hotel Group have since revised the figure to 13 employees, making the total number of hostages 153.
The hotel group's president Wolfgang Neumann said: "We are devastated at what has happened at Bamako today."
The US and French embassies have asked their citizens in Bamako to take shelter.
Mali's President has cut short a visit to Chad where he was attending a regional summit.
President Francois Hollande has said France will "yet again stand firm and show our solidarity" with its former colony.
It is to send extra troops to boost the 1,000 who remain there.
The attack comes a week after the Paris massacre in which 130 people were killed.
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