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The trapped workers say the army in Mozambique is trying to evacuate them from the city, which is near a large gas plant on the Afungi peninsula in Cabo Delgado province.
According to the local news website Pinnacle News, at least 21 soldiers and many civilians were killed in the attack.
– Almost the entire city is destroyed. Many are dead, said one of those who worked at the gas plant Friday night.
There have also been unconfirmed reports of the hijacking of two ships off Palma.
Islamist activist
Militant Islamists launch attack on coastal city Wednesday afternoon. Residents fled to a forest area and workers sought refuge at the Amarula Hotel.
Authorities have confirmed the attack and say soldiers have been dispatched to the area to fight the attackers.
Another trapped worker, working for a subcontractor for French oil and gas giant Total, says a helicopter flew over the hotel to try to find a safe way to evacuate the workers.
Thousands forced to flee
Total has invested large sums in extracting natural gas in Cabo Delgado, but earlier this year it evacuated several thousand employees due to lack of security.
Militant Islamists who pledge allegiance to the extremist Islamist group IS have attacked villages and towns in the province, forcing nearly 700,000 to flee.
At least 2,600 people have died in acts of violence in the area, according to data on events and location of armed conflicts (ACLED).
Palma is located in the extreme north of Mozambique, near the border with Tanzania.
