Heavily armed leftist guerrillas holding 500 hostages in the National Palace said they would start killing hostages unless the government frees political prisoners and pays millions of dollars in ransom, a witness reported.

Many of this Central American country's political elite are among the hostages.

Earlier the guerrillas released more than a hundred of the hostages, mostly women and children, amid unconfirmed U.S. reports that as many as 14 persons were killed in the bloody takeover of the building Tuesday.

President Anastasio Somoza declared a state of emergency and deployed national guardsmen throughout the capital, sparking violent protests by opponents who threw firebombs at soldiers and erected barricades in suburban neighborhoods, witnesses said.

Victor Medina, one of about 20 reporters caught in the building, told Associated Press by telephone that the guerillas "said they will start executing the hostages and throw them out of the window."

"We were sitting on the floor with other hostages talking when a guerilla came over and told us that at 7 p.m. tonight (9 p.m. EDT), they would start executions of the kidnaped if the government did not accede to their demands," Medina said. He said about 25 hostages escaped through a window yesterday morning.

The military government of Somaza ordered all airports in the country closed to vivilian traffic and international telephone calls to government offices were blocked. Reports from Costa Rica said Nicaragua had sealed its border with that country, from which the guerrillas frequently launch attacks.

The guerrillas, who seized the National Palace in a bold 10-minute attack Tuesday afternoon during a session of parliament, released about 110 women and children hostages yesterday morning.

They also released the 15 persons wounded in the attack, including four soldiers, and the bodies of eight National Guard officers killed.

In Washington, State Department spokesman Tom Reston said U.S. officials had unconfirmed reports that 14 persons were killed during the seizure. Informed sources said the figure was based on talks with people who had escaped and probably was accurate.

The raiders witnesses said there were as many as 100 - were demanding release of the country's estimated 150 political prisoners and safe passage to Panama, Venezuela or Mexico for themselves, the prisoners and any hostages they decide to take. They also demanded $10 million in ransom.

The millitary government asked for 24 hours to consider the demands since they involve foreign countries.

The Costa Eican government was watching developments in Nicaragua closely, Public Security Minister Juan Jose Echeveria said in San Jose. A Costa Rican radio report said a number of journalists who tried to cross from Costa Rica into Nicaragua were turned back.

The assault was the most daring in the escalating guerrilla war by Sandinista National Liberation Front insurgents against Somaza's authoritarian, right-wing administration.

Local prelates of the Roman Catholic Church acted as mediators between the guerrillas and authorities.

The government said hostages included Somoza's cousin, Lus Pallais Debayle, deputy speaker of the lower house, and Jose Somoza Alrego, Somaza's nephew and son of the acting commander of the National Guard. Earlier government reports that Treasury Minister Gen. Samuel Genie was a hostage proved to be incorrect.

The government said more than 500 legislators, government officials and civil servants were being held inside the ornate, four-storey building. Women released yesterday said there were up to 100 heavily armed guerrillas.

The guerrillas, wearing uniforms similar to those of the national guard, Nicaragua's army, attacked the palace Tuesday afternoon while the Chamber of Deputies, the 70-member lower house, was meeting.

Somoza, 52, whose heavily guarded offices are in another building, was not in the palace during the attack. The palace houses many government offices and both houses of the national legislature.

The guerillas also were demanding release of the estimated 50 Sandinista guerrillas in custody, publication of the guerrillas' anti-Somoza position in all newspapers and over the radio, and a 50 percent pay raise for striking hospital workers.

The capital city appeared tense and half-deserted yesterday. Many shops were closed, and there were few people or cars on the streets.