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An armed driver who slammed a car into a police van has been shot dead, authorities in France said.

France's Interior Ministry confirmed emergency services are dealing with a "security incident" at the world-famous Champs-Élysées.

Paris police on Monday said they are "in control" after armed police stormed the shopping district in the city centre.

Witnesses say a police van was hit by another vehicle which was the on fire sparking the major response.

"It looks like this was a deliberate act," Interior Ministry Spokesman Pierre-Henry Brandet told reporters at the scene.

The Paris prosecutor's counter-terrorism unit said it had opened an investigation into the incident, which occurred only a short walk away from the Elysees presidential palace and the US embassy.

Brandet said it was very likely that the driver, who had been armed, was dead.

It was later revealed he was on a terror watch list.

A police bomb squad is also present.