Islamists claiming to come from Mali killed three foreigners and are holding 41 more hostage after a raid on a compound near an Algerian gas field. The attack is reportedly in retaliation to the ongoing French military campaign in Mali.

The Algerian interior ministry said a heavily armed terrorist group using three vehicles launched an early morning attack against a base owned by Sontrach, the Algerian national oil company.

A Briton and an Algerian security guard were killed and seven people were injured in the assault, including two foreigners, Algeria's official APS news agency said. A French national was also killed in the attack, Reuters cites a local source as saying.

The Foreign Office in London said it could not confirm that a Briton had been killed, only that “British Nationals ”were caught up in an "ongoing terrorist incident."

"Forty-one westerners including seven Americans, French, British and Japanese citizens have been taken hostage," a spokesman for the Islamists told the Mauritanian News Agency and Sahara Media.

He said some of the hostages were being held at the gas plant, while the others were in a nearby housing complex.

Thirteen Norwegian employees working for the energy company Statoil have also been taken hostage inside the natural gas facility, Norwegian Prime Minister Jens Stoltenberg said at a news conference on Wednesday.

"We've asked the Algerian authorities to put the life and health of the hostages above all," Foreign Minister Espen Barth Eide told reporters.

Algerian security forces have surrounded the kidnappers, a security official based in the region told AP. He confirmed that the militants had come from Mali, though he spoke on condition of anonymity as he was not authorized to speak to the press.

The Algerian Press Service (APS) reports that the Algerians taken hostage have been set free.

"The kidnappers are demanding the release of 100 terrorists being held in Algeria, in exchange for their hostages," a worker at the gas complex told AFP by telephone. 

"(They) have demanded that these (detained) Islamists be taken to northern Mali,"  the source added.

Algerian authorities have ruled out negotiating with the Islamist fighters, however, leaving the fate of the foreign hostages in doubt.

"The Algerian authorities will not respond to the demands of the terrorists and will not negotiate," Interior Minister Daho Ould Kablia was quoted by state news agency APS.

The United States confirmed on Wednesday that US citizens were among the hostages. 

Secretary of State Hillary Clinton telephoned Algeria's prime minister to discuss the incident, though a State Department spokeswoman would not give any further details as they continue in their efforts to "secure these people."

US Secretary of Defense Leon Panetta has said the US "will take all necessary and proper steps" to deal with what he described as a “terrorist attack.” Panetta did not outline what concrete actions the United States would take to deal with the hostage crisis.

An al-Qaeda affiliated group said the raid was executed in retaliation to Algeria’s decision to allow France to use its airspace to launch airstrikes against militants in Mila, where French forces have been targeting Islamists fighters since last week.

A spokesman for the group called Algeria's attitude "a betrayal for the blood of Algerian martyrs slain by the French colonists."

The group further said to ensure the safety of the kidnapped hostages in Algeria, the French attack on Northern Mali must end, Reuters reports.

On Wednesday French troops launched their first ground operation against Islamist rebels following six days of airstrikes.

French President Francois Hollande said on Tuesday French forces would remain in Mali until stability was returned to the conflict-torn West African state.

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