ISLAMABAD, Pakistan (CNN) -- Fears are growing that women and children are being used as human shields at a mosque besieged for two days by Pakistani government troops, as hundreds of militant students ignored a plea from their captured leader to surrender.

Pakistan's Deputy Information Minister Tariq Azim Khan said the few students who had quit the Lal Masjid, or Red Mosque on Thursday said those inside the mosque believed security forces would try to keep casualties to a minimum.

"A large number of women and children are being held hostage by armed men in a room," Khan told a news conference, adding that the brother of the captured cleric was hiding in a basement with 25 "women hostages."

"Yes, they're using them as human shields, because the people who have come out, they told us that they're telling women and children not to worry because as long you're here forces will not attack us," he said according to Reuters. Watch as the mosque standoff continues

Abdul Rashid Ghazi, a cleric holed up in the mosque, said on Thursday his followers were willing to surrender.

He was speaking in a telephone interview broadcast on Geo Television as security forces surrounded the Red Mosque, Reuters reported.

"If they are linked to any banned organization, it can be verified," Reuters reported him as saying, adding that he said there had been a smear campaign to make people believe that militant groups were among the students.

"It can be looked into ... those who are not should be let go," he said, adding that he was ready to abandon the women's madrasas in the compound and needed time to arrange to quit the mosque.

Cleric Maulana Abdul Aziz made his appeal on state-run TV shortly after he was arrested while trying to slip out of the mosque, disguised in a burqa, the head-to-toe covering worn by some Muslim women.

"For students to stay put at the mosque will only be damaging ... they should either leave, if they can, or surrender," he said.

Heavy explosions and an exchange of gunfire could be heard Thursday evening outside the mosque.

In addition, Pakistani military helicopter gunships were seen circling overhead.

Intelligence sources say nearly 1,000 people remained holed up inside the mosque.

Of those, at least 50 are well-armed hard-liners, according to Pakistan's interior minister. He said negotiations with the students have ended and reiterated demands for their surrender.

More than 1,200 of the students have already surrendered. Earlier in the day, Aziz told state-run TV that about 850 students remained inside -- including children, around 600 women and some 14 men armed with Kalashnikov sub-machineguns.

Pakistani forces have demolished the Red Mosque's front walls and warned students by loudspeaker they had one last chance to surrender before a full attack took place, intelligence and military sources told CNN.

Heavy gunfire from both sides in the conflict, punctuated by loud explosions and the frequent firing of tear gas, erupted shortly before 4 a.m. Thursday (2300 GMT Wednesday).

At least 24 people, including two members of the security forces and one journalist, have been killed in the two days of battles.

Tensions have been simmering between police and the students at the mosque, who are blamed for a string of recent kidnappings of civilians, Chinese nationals and Pakistani police.

The government has been investigating the activities of the mosque, whose students who are demanding sharia, or Islamic law, be instituted in Islamabad.

As part of the clampdown on the mosque compound -- which includes several madrassas, or religious schools -- police set up a security perimeter around the mosque compound last week.

The violence began Tuesday when about 150 militant students attacked a police checkpoint close to the mosque. Police fired tear gas and the students fought back with sticks and guns.

Pakistan President Pervez Musharraf earlier announced he would give 5,000 rupees (US $83) to any student who surrendered.

Brigadier Gen. Tareen of the Pakistan Rangers, head of the military operation at the mosque, said the older students inside were using young boys and girls as human shields.

"We will establish writ of the government at any cost and these people don't have any other choice other than to surrender," he said.

The Pakistan Rangers, a paramilitary group, are conducting the operation with the help of the police and the army. The area around the mosque is totally sealed, and nobody is allowed to enter nor leave.