Islamist fighters have opened an international front in Mali's civil war by taking dozens of Western hostages at a gas plant deep in Algeria's Sahara Desert.
At the same time, French troops have launched an offensive against rebels in neighbouring Mali.
The Algerian army is surrounding the natural gas complex near the town of In Amenas, close to the Libyan border, and the government says it will not negotiate with the militants.
A day after gunmen stormed the natural gas pumping site before dawn on Wednesday, little is certain beyond a claim by an al Qaeda-linked group calling itself the "Battalion of Blood" that it is holding 41 foreign nationals at Tigantourine deep in the Sahara, Reuters reports.
British, Norwegian and Japanese nationals have been confirmed to be among the hostages. Washington believes American citizens are also being held. However, there are conflicting reports as to exactly how many men have been killed, seized or wounded.
British Foreign Secretary William Hague confirmed on Thursday that one Briton has been killed and "a number" of others were being held hostage. Algerian media say an Algerian was killed in the assault, while another local report says a Frenchman also died.
The militants are demanding that France halt its week-old intervention in Mali - an operation endorsed by Western and African allies who fear that al Qaeda, flush with men and arms from the defeated forces of Libya's Muammar Gaddafi, is building a haven in the desert.
Algerian Interior Minister Daho Ould Kabila said the kidnappers were Algerian and operating under orders from Mokhtar Belmokhtar, a senior commander of al-Qaeda in the Islamic Maghreb before late last year, when he set up his own armed group after apparently falling out with other leaders.
The militants say they have dozens of men at the base, near the town of In Amenas close to the Libyan border, and that they were armed with mortars and anti-aircraft missiles.
Hostages 'forced to wear explosives'
One of the hostages says the militants have forced some people to wear belts strapped with explosives.
The man told television channel France 24 in a phone call that the hostage-takers are heavily armed and have threatened to blow up the facility if the Algerian army tries to free the hostages. He said the militants attacked the gas pumping site and workers' housing before dawn.
France 24 said it had no way of confirming if the employee, who did not want to be named, was speaking under duress.
French president Francois Hollande, who won wide praise for ordering air strikes and sending troops to the former French colony, has warned of a long, hard struggle in Mali and now faces a risk of attacks on more French and other Western targets in Africa and beyond, Reuters reports.
The United States and other Western governments condemned what they called a terrorist attack on a facility, now shut down, that produces 10% of Algeria's gas, much of which is pumped to Europe.
The gas field is operated by Algerian state oil company Sonatrach, along with the British oil company BP and Norway's Statoil. It is situated about 1300km south-east of the capital, Algiers, and about 60km west of the Libyan border.