Tourists staying in a luxury hotel in Rio de Janeiro were taken hostage by an armed gang involved in a shoot-out with police.

Ten armed members of one of Rio’s most notorious drugs, who were on the run from police swept, entered the InterContinental hotel in the exclusive São Conrado area on Sunday, taking 35 hostages.

They were later released unharmed after a three-hour siege. A female gang member was killed and four policemen injured in the shoot-out, and 10 arrests made.

“It was as if the shooting was happening inside our house,” the Brazilian sociologist Luiz Eduardo Soares, who lives in the area, told O Globo. “The walls were shaking and we realized we were at the centre of the shoot-out.”

Paul Ayscough, 48, a British businessman who was staying in the hotel, told The Guardian: “There must have been over 1,000 shots. It was a huge number of shots – automatic fire, pistol fire, everything.”

The violence was sparked on Sunday morning when 60 members of a gang were intercepted by police whilst returning to their base in Rio’s largest favela, Rocinha, after an all-night party.

Some of the gang members managed to flee to Rocinha, but at least 10 sought refuge in the hotel.

The violence raising concerns over safety in Rio, which is host city of the 2016 Olympics and the 2014 Fifa World Cup. The city is blighted by drug wars but these are usually contained within the favelas.

Rio’s governor, Sergio Cabral, said the government’s offensive against drug traffickers would continue. “We are under no illusion … about the size of the challenge. But we are convinced we are on the right track.”

But Soares said the problem was far from resolved.

“We have been sharing in the illusion that Rio is entering another chapter, turning the page on the horror,” he said. “But this shows that the pacification units are merely islands of excellence in an ocean of barbarity that is very much alive.”