Major general Waheed Arshad, the chief military spokesman, told reporters on Tuesday that the armed students were firing on security forces from the minarets.
"I would not say that they are following the teachings of the Prophet, but the warped version of their warped clerics"
Chris, Stockholm, Sweden
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"About three or four terrorists have occupied the minarets. They are violating the sanctity of the mosque," Arshad said.
He added that the northern part of the mosque was cleared, enabling several women in burqas and around 30 children to escape, but the fighting was still going on in the southern part.
Hundreds remained inside as soldiers went through the compound's 75 rooms one at a time, facing bitter resistance.
"It is a final push to clear the mosque of armed militants," Arshad said.
"We are taking a step-by-step approach, a very deliberate approach, to make sure there is no collateral damage unnecessarily," he told reporters.
Al Jazeera's Rageh Omaar said the mosque compound is a large and complex building which will take the military a long time to cover, in the attempt to combat the armed students.
The army will have to go room by room in a thorough search for those still inside, he said.
He added that there was no sign of the armed students giving themselves up.
Earlier on Tuesday Pakistani forces stormed the mosque compound in the capital after negotiations to an end a bloody standoff broke down.
Arshad said security forces launched an operation at 4am (23:00 GMT on Monday) "to clear the madrasa of militants".
Chaudhry Shujaat Hussain, a former prime minister and ruling party leader who led negotiations with those inside, said the final effort to secure a peaceful solution had failed.
"I am returning very disappointed," he said.
Al Jazeera's Kamal Hyder said Pakistani officials had been hoping for a peaceful end to the seven-day standoff at the Islamabad mosque after negotiators offered religious leaders inside a deal.
The deal was believed to have been arranged after Hussain met Pervez Musharraf, Pakistan's president.
Hyder said Hussain had gone back to the mosque with an offer of safe passage, one of the demands of Abdul Rashid Ghazi, the mosque's deputy leader.
Security forces had previously held back from mounting a full-scale assault because of fears for the safety of women and children that they said were being held hostage by Ghazi.
Ghazi said he had nearly 2,000 followers with him and that no one was being held hostage.