French police have surrounded a printer's building in a town north-east of Paris where two men suspected of the Charlie Hebdo massacre are said to be holding a hostage.
Shots have been fired and several people are said to have been wounded in Dammartin-en-Goele, 35km from the capital and close to Paris's international airport.
The extremists have reportedly told a police negotiator they want to die as martyrs.
The development comes nearly 48 hours after the attack on the satirical magazine's office, when 12 people were shot dead.
A BBC correspondent in the area says several Puma helicopters are hovering above, and that hundreds of police cars and armoured vehicles have arrived.
Press were rapidly moved on from the area amid warnings of danger to onlookers.
The correspondent says huge convoys of police line the main N2 highway.
There are reports of flights being cancelled at nearby Charles de Gaulle airport.
In the United States, a senior official has told reporters one of the two brothers alleged to have carried out the attack, Said Kouachi, spent "a few months" training in Yemen with al-Qaeda.
Said and his younger brother, convicted terrorist Cherif Kouachi, were on a US no-fly list before the attack, a US counter-terrorism official told the New York Times.
Earlier the brothers had been identified - reportedly masked and armed - at a petrol station near the town of Villers-Cotterets, 80 kilometres from the French capital, before fleeing again.
An AFP reporter saw 20 heavily armed security force officers surround a nearby house and storm it, keeping journalists away from the scene.
The village of Longport has been also been sealed off, with house-to-house searches for brothers, Cherif and Said Kouachi.
A New Zealander teaching in Villiers-Cotterets, Laura Gleeson, said people were told to stay off the streets.
She said she did not know if schools would be open tomorrow but roads between the towns were either closed or under heavy guard.
Ms Gleeson said there were military police in the streets but very few pedestrians because people were told to leave their homes only if they were travelling by car.
Ms Gleeson said usually her students are allowed to leave school in the lunch break but that didn't happen today.
Islamic State, the militant group sowing terror across swathes of Iraq and Syria and calling for global jihad, hailed the brothers as "heroes" on its Al-Bayan radio station.
This was the first reaction by the jihadists to yesterday's massacre in which the fugitive brothers allegedly said they were taking revenge for Charlie Hebdo's repeated publication of cartoons seen by many Muslims as sacrilegious.
In a further sign of the attackers' motives, a source close to the case said that Molotov cocktails and jihadist-style flags had been discovered in another getaway vehicle used by the attackers.
A maximum security alert declared in the capital was expanded to the region where manhunt was taking place.
As the dramatic chase unfolded, bells tolled across France at midday, public transport paused and people gathered outside the headquarters of Charlie Hebdo in pouring rain with banners reading "Je Suis Charlie" (I am Charlie).
Thousands of people gathered in the streets to mark a minute of silence and television footage showed children at a Muslim school in the northern city of Lille holding up sheets of paper emblazoned "not in my name".
Across the world, crowds also gathered from Moscow to Wellington under the banner "I am Charlie" to show support for the controversial magazine, which had angered Muslims by repeatedly lampooning the Prophet Mohammed and was seen by supporters as an emblem of free speech.
Meanwhile, several other incidents rocked the jittery nation, although it was not clear whether they were linked to yesterday's attack.
Just south of Paris, a man shot dead a policewoman and wounded a city employee with an automatic rifle, but the BBC reported that the French interior minister said there was no direct link between this and and Paris killings.
There was an explosion at a kebab shop in eastern France, with no casualties immediately reported. And two Muslim places of worship were also fired at in the wake of the Paris attacks, prosecutors said.
Declaring Thursday a national day of mourning - only the fifth in the last 50 years - French President Francois Hollande called the Charlie Hebdo bloodbath "an act of exceptional barbarity".
Meanwhile, The Eiffel Tower in Paris went dark as a tribute to the victims.
The lights normally illuminating the tower were scheduled to be turned off at eight in the evening Paris time.
The French government also called for large demonstrations to show solidarity across the country on Sunday.
'Armed and dangerous'
National television ran constant live coverage of the manhunt for the masked, black-clad gunmen, who shouted "Allahu akbar" ("God is greatest") while killing some of France's most outspoken journalists, as well as two policemen.
Arrest warrants were issued for Cherif Kouachi, 32, a known jihadist convicted in 2008 for involvement in a network sending fighters to Iraq, and his 34-year-old brother Said.
Both were born in Paris and are French nationals of Algerian origin.
The two men were likely to be "armed and dangerous", authorities warned.
Interior Minister Bernard Cazeneuve said seven other people had been detained in the hunt for the brothers.
Prime Minister Manuel Valls, meanwhile, told French radio the two suspects were known to intelligence services and were "no doubt" being tracked before Wednesday's attack.
Police were using forensic evidence and an ID card found in a car abandoned by the gunmen after the attack.
Mourad Hamyd, an 18-year-old suspected of being an accomplice in the attack, handed himself in after he saw his name "circulating on social media", police sources said.
It was not clear what role, if any, he played in the attack.
'Nothing can divide us'
Mr Hollande ordered flags to fly at half-mast for three days in France and convened an emergency cabinet meeting.
"Nothing can divide us, nothing should separate us. Freedom will always be stronger than barbarity," said the president, calling for "national unity".
As a sign of this unity, Hollande invited arch-rival and opposition leader Nicolas Sarkozy to the Elysee Palace, his first visit since losing power in 2012.
Even before the attack, France, home to Europe's biggest Muslim population, was on high alert like many countries that have seen citizens leave to fight alongside the radical Islamic State group in Iraq and Syria.
France's main Islamic groups urged Muslims across the country to observe Thursday's minute of silence and for imams to condemn terrorism.
But Parisians battled to come to terms with the violence.
Herve Roch, father of two children aged nine and four, said: "You have to explain what happened (to the children). We told them that evil people came to do bad things and the police would catch them."
"I'm an old woman. I lived through the occupation. France needs to wake up so we still have freedom of thought," said Monique Valton, 81.
US President Barack Obama led the global condemnation of what he called a "cowardly, evil" assault.
Meanwhile, cartoonists worldwide reacted as they know best, composing biting satirical drawings against what editorialists said was an attack on the foundations of democracy.
Among the cartoons that went viral online was one by Australia's David Pope: a picture of a gunman with a smoking rifle standing over a body, bearing the caption "He drew first".
Charlie Hebdo would come out next week with a print-run of one million despite the decimation of its staff, one of the magazine's columnists said.
The killings were the deadliest attack in France since 1961, when a bomb planted by far-right militants opposed to plans for Algerian independence killed 28 people on a train.