Four Taliban militants equipped with RPG rockets, and heavy and light weapons stormed the hotel Spoghmai at Lake Qargha late Thursday evening, one of the busiest nights for the hotel's restaurant.
They initially killed the two guards at the gate, took dozens hostage in a siege which lasted about 13 hours.
Of the attackers, one blew himself up, and the other three were killed by security forces, police said.
The Taliban claimed responsibility for the attack, in a released statement saying Nato and foreign embassies personnel and their Afghan colleagues were staying there for "prostitution and wild parties".
Afghan police say 18 people killed during 13-hour assault on hotel in Qargha Lake on the outskirts of the capital.
No final information on civilian, police or Taliban deaths was immediately available, although Sediq Sediqqi, an interior ministry spokesman, said on Friday that fighters who attacked the Spozhmai hotel on Lake Qargha were dead.
Aljazeera reported that there are some explosives and booby traps still inside. There are dozens of Afghan forces here and NATO forces that fought alongside them.
"There is evidence of the very, very long siege, the 13 hour siege that went on here, all over the grounds. There are spent shells everywhere. We heard explosions and sustained gunfire for hours,"
"We believe that 18 people have been killed, among them three security guards and a policeman”. Aljazeera reporter said.
The Taliban claimed responsibility for the attack, earlier saying it had killed up to 15 people.
But the group claimed no civilians were killed and all the casualties were individuals connected to the government.
The Taliban said they had "separated out any innocent civilians and put them in a safe room," our correspondent reported.
The Taliban assault began around 11:30pm (1900 GMT) on Thursday, said General Mohammad Zahir, head of the Kabul police investigation unit.
The gunmen, some armed with rocket propelled grenades and heavy machine guns, attacked the hotel during the night, triggering a gunbattle in the darkness, police said.
"The area under attack is about 45 minutes outside Kabul in a lake area where many Afghan families come to spend the weekend," Aljazeera correspondent said earlier.
"This is a very bold attack coming, as it has, during the weekend.
While claiming responsibility for the attack, the Taliban said wealthy Afghans and foreigners used the hotel to have "wild parties" in the lead up to the Friday religious day holiday.
"Our mujahideen [holy warriors] last night attacked this hotel because high-profile people from embassies, ISAF and the Kabul administration gather here every Thursday for wild parties, drinking and prostitution," Zabihullah Mujahid, a spokesman for the Taliban, told AFP news agency.
"The Taliban has claimed responsibility saying that they attacked this hotel because it was frequented by foreigners and the un-Islamic practices that go on here”.