The death toll in a shooting near the picturesque Christmas market in the historic French city of Strasbourg has been revised to three, with at least 12 people injured.

The shooter is still at large, after opening fire in Place Kleber, one of the central squares of Strasbourg.

It was unclear if the market — which was the nucleus of an al-Qaeda-linked plot in 2000 — was targeted.

Christmas Market revellers seen on the ground. (AAP)

Soldiers are crawling across the city, with the shooter still at large. (AAP)

French prosecutors said a terrorism investigation was opened, though authorities did not announce a motive for the bloodshed. The city is home to the European Parliament, which was locked down after the shooting.

Place Kleber is home to an annual Christmas market, known for its luxury brands and grand Christmas tree, centred around the city's cathedral.

The prefect of the Strasbourg region said the suspect was previously flagged as a possible extremist.

Two people have been confirmed dead. (AAP)

(9News)

One official, Stephane Morisse of union FGP, told The Associated Press the alleged shooter was wounded by soldiers guarding the market.

Police have revealed they went to the suspect's home to arrest him earlier Tuesday, before the attack, but he wasn't there.

They found explosive materials.

Witnesses described hearing gunshots, screams and the shouts of police officers ordering people to stay indoors before the area fell silent and the officers fanned out.

The exact location was the target of an Al Qaeda plot in 2000. (AAP)

Armed police on the streets of Strasbourg following reports of a shooting. (Twitter)

One of the victims is reportedly a tourist from Thailand with bystanders attempting to resuscitate him for 45 minutes before he was declared dead.

French President Emmanuel Macron's office says he is being kept informed on the shooting, and is sending the French interior minister to Strasbourg.

Place Kleber is a central square highly visited by tourists for its Christmas market. (Twitter)

France previously endured several high-profile extremist attacks, including the coordinated attacks at multiple Paris locations that killed 130 people and wounded hundreds in November 2015.

A 2016 truck attack in Nice killed dozens.

The attack revived memories of a new millennium terror plot targeting Strasbourg's Christmas market. Ten suspected Islamic militants were convicted and sentenced to prison in December 2004 for their role in a plot to blow up the market on the New Year's Eve ushering in 2000.

The Algerian and French-Algerian suspects — including an alleged associate of al-Qaeda leader Osama bin Laden — went on trial in October on charges they were involved in the foiled plot for the attack.