The gunman was identified as a 29-year old man whose residence had been searched by police earlier in the day in connection with a robbery, two police sources said.
The attacker was allegedly placed on an intelligence services watchlist by security services, the Interior Minister Christophe Castaner said —a detail that, if confirmed, will feed the Islamophobia and anti-immigrant sentiment growing in the country.
Castaner said the shooter had evaded a police dragnet and was on the run, raising concerns of a follow-up attack.
“The government has raised its security threat to the highest level and is bolstering border controls,” Castaner told a late-night news conference. “We will also reinforce security at all Christmas markets to prevent copycat attacks.”
Castaner said the gunman exchanged shots with security forces twice as he escaped. His whereabouts now were unknown, and elite commandos and helicopters were involved in the manhunt.
The killing took place near Strasbourg's Christmas market, which draws millions of tourists every year, a source at French security forces said.
"There were gunshots and people running everywhere," one local shopkeeper told BFM TV. "It lasted about 10 minutes."
A source at the prosecutor's office said the motive behind the shooting was not immediately clear and that an investigation was underway.
President Emmanuel Macron was informed of the shooting and was being updated as events unfurled, an Elysee Palace official said. Interior Minister Christophe Castaner was on his way to Strasbourg, which lies on the border with Germany.
France remains on high alert after suffering a wave of attacks commissioned or inspired by the Islamic State group in 2015 and 2016, which killed more than 200 people.
The Christmas market was being held amid tight security this year, with unauthorized vehicles banned from surrounding streets during opening hours and checkpoints set up on bridges and access points to search pedestrians' bags.