French police have killed the suspected gunman who shot and stabbed people at Strasbourg’s Christmas market, killing three and leaving a dozen wounded.

Chérif Chekatt was shot dead on Thursday evening, 48 hours after he disappeared sparking a massive manhunt. He was killed after police officers spotted him in the Neudorf area of south-east Strasbourg near where he was last seen getting out of a taxi on Tuesday evening.

The French interior minister, Christophe Castaner, said three police officers had come across the suspected man, whom he described as “the terrorist”, in the street at around 9pm local time (8pm GMT) on Thursday.

“When the individual turned and shot at the police, they immediately returned fire and neutralised the assailant,” Castaner said. Police said none of their officers had been injured in the exchange. They said Chekatt’s weapon was an 8mm ordnance revolver, an old weapon, and that the officers who shot him were neighbourhood police, not firearms specialists.

In a short statement to press, Castaner added his thoughts were with the victims and their families of Tuesday’s attack as well as for Strasbourg, which he said had been “bruised” by the incident.

Facebook Twitter Pinterest French special police forces secure an area during a police operation seeking the suspected gunman. Photograph: Christian Hartmann/Reuters

And he praised the security services involved in hunting the suspected gunman. “I am proud. Proud of you,” he said.

Castaner told journalists the suspect had been “neutralised” according to the rules. “Our objective was to arrest him but after they [police] were shot at one or twice, they were obliged to fire back,” Castaner said.

After the killing of Chekatt was announced, Strasbourg’s mayor, Roland Ries, told reporters: “I think it will help to get back to a life that I would describe as normal. With the death of this terrorist ... citizens, like me, are relieved.”

Chekatt, 29, who was born in Strasbourg, was on the Fiché-S list of people considered a potential security threat and had been flagged up as having been radicalised. He was well known to police as a criminal and had been convicted 27 times, mostly for theft and violence, in France, Germany and Switzerland.

On Tuesday morning, police went to arrest him in connection with an armed robbery and attempted murder, but he was not home. Inside his flat, officers allegedly found a stun grenade, a rifle and several knives, including two hunting knives.

Hours later, the gunman marched over a bridge into central Strasbourg, opened fire at shoppers at the market and stabbed passers-by. After exchanging fire with patrolling soldiers during which he was shot in the arm, he jumped in a taxi and made a 10-minute journey to Neudorf. Leaving the taxi, the suspect was involved in another exchange of fire with police. He then disappeared.

Three of those wounded were fighting for their lives on Thursday, Castaner told a news conference before news broke that Chekatt had been shot dead.

On Wednesday, Laurent Nuñez, the secretary of state for the interior ministry, speculated that the failed arrest might be one reason for the attack.

Police Nationale 67 (@PoliceNat67) #Strasbourg

Fin de la traque. pic.twitter.com/58qZmhAFQI

The French authorities immediately blocked main roads out of the city and reinforced France’s border with Germany.

Witnesses said the man shouted “Allahu Akbar” as he shot into the crowds and slashed at passersby with a knife. An investigation has been opened for “murder and attempted murder in relation to a terrorist enterprise”.

According to the Reuters news agency, the Islamic State terrorist group claimed shortly after Chekatt was killed that he was one of its followers. He “carried out the operation in response to calls for targeting citizens of coalition countries” fighting the militant group, according to a statement on its Amaq news website. The group provided no evidence for the claim.

On Wednesday, French police launched a national appeal for information about Chekatt, described as a “dangerous individual”. More than 700 security forces had been mobilised to hunt for the suspected gunman and France had upgraded its security level to the highest possible.

Earlier on Thursday evening, Castaner announced that the Christmas market, which attracts millions of visitors, would reopen under high security on Friday.

The Paris prosecutor’s office also said a fifth person had been arrested and placed in custody in connection with the investigation into Tuesday’s shootings.

The office said the man was a member of Chekatt’s “entourage”, but not a family member. He was placed in custody on Thursday morning. The four others detained prior to that are Chekatt’s parents and two of his brothers.