Suspected 'terror attack' on French factory

France has opened a "terrorism investigation" following an attack at a gas factory on Friday, where a severed head and banners with Arabic inscriptions were found at the entrance.

French President Francois Hollande said the attack began shortly before 10:00 a.m. when a car made it through the gate of a gas factory in Saint-Quentin-Fallavier, southeast of Lyon.

The car then plowed into gas canisters, touching off an explosion that injured two people, he said, speaking in Brussels.

"No doubt about the intention - to cause an explosion," Hollande said, calling the attack "of a terrorist nature."

French Interior Minister Bernard Cazeneuve said a man from the Lyon region who had been flagged in 2006 for suspected ties to extremists was seized by an alert firefighter.

The 35-year-old man, Yacine Salhi, was investigated nine years ago for radicalisation and has links to the Salafist movement, Cazeneuve said.

He said several other people were also taken into custody after the attack. It was not clear if French authorities were searching for any more possible accomplices.

The severed head at the factory's entrance appeared to be an echo of the Islamic State group's practice of beheading prisoners and displaying their heads for all to see.

A security official said two flags - one white and one black, both bearing Arabic inscriptions - were found nearby.

Three French officials say the decapitated victim was the suspect's employer.

The officials, who spoke on condition of anonymity because the investigation was ongoing, said the victim was believed to have died before the suspect rammed his car into the gas canisters.

The industrial site belongs to Air Products, an American chemical company based in Allentown, Pennsylvania.

The company said all its employees had been accounted for and evacuated but did not say if any had been wounded.

France's anti-terror prosecutor said an investigation was opened into the attack, and potential charges including plotting as part of "a terrorist group."

Cazeneuve said Friday that security has been heightened at religious sites around the country. Hollande spoke after watching TV news reports about the attack with German Chancellor Angela Merkel as both attended a European Union summit in Brussels.

The attack came nearly six months after attacks in and around Paris that killed 17 people in January that started with a shooting at satirical magazine Charlie Hebdo.

France has a high proportion of people that have gone to fight alongside Islamists in Iraq and Syria and has been on alert for possible attacks on its soil since.