The attack began just before midnight when 10 gunmen wearing military uniforms shot their way into the airport`s old terminal used mainly for charter and executive flights.
The Pakistani Taliban, an alliance of insurgent groups fighting to topple the government and set up a sharia state, claimed responsibility, saying it was in response to army attacks on their strongholds along the Afghan border.
"It is a message to the Pakistan government that we are still alive to react over the killings of innocent people in bomb attacks on their villages," said Shahidullah Shahid, a Taliban spokesman.
The attack all but destroys prospects for significant peace talks with the government of Sharif, who came to power last year promising to find a negotiated solution to years of violence.
At the airport, gun battles went on for five hours and television pictures showed fire raging as ambulances ferried casualties away. At least three loud explosions were heard as militants wearing suicide vests blew themselves up.
By dawn on Monday, the army said the airport had been secured but heavy smoke rose above the building.
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