Unidentified assailants attacked the premises of a US gas company in southeast France on Friday.
French police sources and local media reported that unidentified people rammed their car into a pile of gas containers, causing an explosion.
Police have also confirmed claims that a decapitated body was found, with French newspaper Le Dauphine reporting that the head was covered in Arabic writing. Two people were also injured in the attack.
One suspect has been arrested and police have said that it is unclear whether the alleged attacker was acting alone or had accomplices.
French prosecutors said that anti-terrorism units have been deployed to the site to investigate the attack.
The Paris prosecutor’s office in a statement also said that an investigation is underway for murder and attempted murder by an organised group in relation to terrorism.
French President Francois Hollande is to return early to France from an EU summit being held in Brussels.
Interior Minister Bernard Cazeneuve was also reported as heading to the site of the incident.