A self-proclaimed Al-Qaeda militant took hostages at a bank in the French city of Toulouse on Wednesday, close to where serial killer Mohamed Merah lived and was shot dead by police in March.
TOULOUSE- The man, who sources said had a history of psychiatric problems, took four people hostage but later freed a woman after talks.
The man fired a shot and took the bank manager and the others hostage before declaring he wanted to negotiate with the elite RAID police unit that killed Merah, police sources said.
Food had been sent into the hostages, the sources said, adding that no one had been injured.
"We don't yet know if this is a robbery that went wrong or if (the hostage taking) is a premeditated act," a police source told AFP.
The man called himself "Boumaza" and has a criminal record, police said. Another source said he was schizophrenic and "may have stopped his treatment".
He entered the bank and insistently asked for money but staff did not take him seriously, police told AFP. He then produced a gun and took everyone hostage.
The 26-year-old was "put in a foster home when he was little and suffers from rage and fears the outside world," his sister told AFP over the telephone.
An employee answered the phone when an AFP journalist called and confirmed that she was inside the besieged bank.
"I'm answering clients' phone calls," she said in a calm voice but refusing to discuss the situation inside the bank.
Parents of pupils at a nearby school were sent a text message telling them to pick up their children, witnesses said, and rapid-intervention GIPN police units were dispatched from southern cities Bordeaux and Marseille.
The RAID unit that shot dead Merah after he went on a killing spree is based in Paris, hundreds of kilometres to the north.
The CIC bank and Merah's former flat are within five hundred metres of each other in Toulouse's Cote Pavee neighbourhood, east of the city centre.
Merah was killed at the end of a 32-hour siege of his flat after he shot dead seven people -- three soldiers, and three children and a teacher at a Jewish school in Toulouse -- in a wave of killings that shocked the country.
Toulouse, a city of around 500,000 people, lived in fear while police hunted the killer before he was identified as Merah. His neighbourhood has struggled to shake off the stigma of being associated with him.
"We're going through the same thing as three months ago," said Maria Gonzalez, a mother with two children who could not go home because of the police cordon.
"We used to be worry-free in the neighbourhood, but since the Mohamed Merah problem, we're worried. It's happening again, it's starting to scare me," she said.
The 23-year-old who claimed to be an Al-Qaeda militant filmed himself carrying out the attacks and reportedly confessed to police before he was shot dead.
A petty criminal of Algerian origin, Merah reportedly spent time in Pakistan and Afghanistan but it is not known if he attended militant training camps.
Riding a powerful scooter, Merah shot dead three French troops in cold blood, reportedly because of French military interventions abroad.
He told negotiators the Jewish school killings were to avenge Palestinian children killed by Israel.
French intelligence was heavily criticised for failing to keep tabs on Merah despite the fact he travelled to known hotbeds of militant Islam.
Coming at the height of the French presidential election campaign, the killings prompted then-president Nicolas Sarkozy to compare the national trauma to that of the United States after the September 11, 2001 attacks.
France has the largest Muslim population in Europe.