French troops engaged in close combat with Islamist rebels on Wednesday in Mali as Al Qaeda-linked fighters attacked a gas plant in neighboring Algeria taking several foreigners hostage.

After days of airstrikes on Islamist positions in the territory they have occupied since April, French and Malian troops battled the insurgents in the small town of Diabaly, some 400 kilometers snorth of Bamako.

"The special forces are currently in Diabaly, in close-quarter combat with the Islamists. The Malian army is also in place," a Malian security source said on condition of anonymity. This was confirmed by a regional security source.

Diabaly was seized on Monday by fighters led by Algerian Abou Zeid, one of the leaders of Al Qaeda in the Islamic Maghreb (AQIM), as the Islamists remained on the offensive even as French fighter jets pounded their positions.

French Defense Minister Jean-Yves Le Drian said the western zone where Diabaly lies was home to "the toughest, most fanatical and best-organized groups. It's under way there but it's difficult."

Meanwhile in Algeria state media said that one person had been killed and seven wounded, two of them foreigners, in an attack on a British oil giant BP field in Amenas, in the Sahara desert. An Algerian deputy said five staff, one French national and four Japanese, had been taken hostage.

"We are members of Al Qaeda and we came from northern Mali," an Islamic militant told AFP in claiming responsibility for the attack. He said his group belonged to a fighting unit led by Mokhtar Belmokhtar, a former AQIM leader.

The attack was the first reprisal by the Islamists who have vowed to strike back, and comes after Algeria threw its support behind the Mali offensive and opened its airspace to French fighter jets.

French President Francois Hollande vowed his forces would crush the Islamist fighters. "What do we plan to do with the terrorists? Destroy them. Capture them, if possible and make sure that they can do no harm in the future," he said on Tuesday.

Côte d'Ivoire's President and ECOWAS chairman Alassane Ouattara said on Wednesday that he hoped for support from all European partners in the struggle against Islamic militants in Mali.

"I would like this action to be supported by all Europeans. It was urgent to act and I congratulate French President Hollande but everyone has to mobilize," said Ouattara at a joint news conference with German Chancellor Angela Merkel.

AFP