France has been placed on high alert for the next three days after a person was found decapitated in what officials called a "terrorist" incident at a gas factory in southeastern France.

French President Francois Hollande, speaking in Brussels, said the incident began shortly before 10am local time on Friday after a car crashed the gate and ran into gas canisters, causing an explosion. At least two others were injured in the attack.

A security official said a severed head was found posted on the gate at the entrance to the factory, located in Saint Quentin Fallevier, about 30km southeast of Lyon. According to legal sources, the man decapitated was the boss of the suspect now in police custody.

Two flags, one white and one black, both with Arabic inscriptions, were found nearby, a security official told the AP news agency.

"The attack was of a terrorist nature since a body was discovered, decapitated and with inscriptions. As I speak, there is one fatality and two injured," said President Hollande, speaking in Brussels.

A French prosecutor said four people were in custody and that police were still searching buildings for evidence.

'Salafist links'

French Interior Minister Bernard Cazeneuve, speaking to reporters near the scene of the attack, said the suspect had links to the Salafist movement and had been on an intelligence watch list between 2006 and 2008.

Cazeneuve said the suspect was apprehended by a fireman who had responded to the incident.

Several other people were also arrested at the scene by police, as a precaution, he said.

A full-scale investigation was launched.

Al Jazeera's Paul Brennan, reporting from Saint Quentin Fallevier, said officials have not yet confirmed what the motive for the attack was.

Brennan said that the man who was arrested was aged 30 and was known to police.

The target of the attack is a chemical factory which is reportedly linked to a French company called Air Products that works with Total and specialises in liquid gas.

The company issued a statement following the incident, saying that all of the employees have been accounted for.

"Our priority at this stage is to take care of our employees, who have been evacuated from the site," the company said.

The attack came nearly six months after the attacks in and around Paris that killed 17 people in January that started with a shooting at satirical magazine Charlie Hebdo.