The two suspects in the Charlie Hebdo massacre were holding a hostage in a commercial building in Dammartin-en-Goele, northeast of Paris, according to the French media.
A police operation is currently under way in the area, Interior Minister Bernard Cazeneuve said in a statement.
An elite unit of the Gendarmerie is in place and will carry out an operation, added the minister.
According to the television channel RTL, the suspects, who are brothers of Algerian parentage, have entrenched themselves in a company office in the town and have taken a hostage.
At around 7.40 a.m. GMT, the two men stole a vehicle belonging to a woman in the town of Montagny-Sainte-Felicite and identified themselves as the Kouachi brothers who are wanted for the attack Wednesday on the offices of the Charlie Hebdo satirical magazine in Paris in which 12 people died.
A few minutes later, there was a shootout with police in Dammartin-en-Goele.
A witness quoted by RTL said he had heard two shots, and helicopters arrived soon after along with the security forces who ordered residents to stay in their homes and keep their windows closed.
In a related development, the minister said that the investigation into the murder of a woman police officer in Montrouge, south of Paris, Thursday has also made significant progress in the last few hours.