The men, who were wearing masks and bulletproof vests, then began firing randomly at staff in the lobby. It is understood that a number of hostages have been taken, but the nationalities were unclear.
Security forces then surrounded the building, while residents fled out of emergency exits.
"After being pursued and surrounded on the hotel's 21st floor, the attackers detonated explosive belts they were wearing," Issam al-Naass, a spokesman for security services, told AFP.
One member of staff said the hotel had Italian, British and Turkish guests, but the hotel was largely empty at the time of the attack.
Essam Naas, a spokesman for Tripoli security forces, told Reuters earlier: "The security forces are evacuating the guests floor by floor. There was shooting between the gunmen and the security forces,"
"It is more than likely that there are hostages held by the gunmen on the 23rd floor."
The Maltese-owned hotel is also used by senior Libyan politicians as a de facto headquarters for visits to Tripoli and political meetings.
The hotel previously came under attack in 2013 when a former Libyan prime minister, Ali Zeidan, was briefly abducted from the hotel by one of the many armed factions now competing for power in Libya.
Libya is caught up in a conflict involving two rival governments -- an internationally recognised one based in eastern Libya and a rival administration set up in Tripoli after an armed faction called Libya Dawn took over the capital.
Most foreign governments closed their embassies and pulled their staff out of Tripoli after fighting between the rival factions erupted last summer.
It was not immediately clear who carried out Tuesday's attack, but the SITE monitoring service said a militant group claiming affiliation with Islamic State had claimed responsibility.
Citing social media, SITE said the group claimed the attack was revenge for the death of Abu Anas al-Liby, the suspected al Qaeda figure alleged to have helped plan the 1998 bombings of the U.S. embassies in Tanzania and Kenya. He died in hospital this month in New York ahead of his scheduled trial.
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