The 23-year-old French national suspected of killing three children and a rabbi at a Jewish school this week was arrested today following a standoff with police at a house in Toulouse, BFM-TV reported.

Elite French police were locked in a dramatic standoff in Toulouse earlier today with the suspected al-Qaeda-linked gunman believed to be behind the massacre, as well as the earlier killings of three off-duty soldiers.

Two officers were wounded as the police special weapons squad cornered the 23-year-old French national, named as Mohammed Merah, in a house in the southern French city in the early hours. The initial raid failed to secure Merah's arrest. Negotiations were ongoing in the early afternoon.

An explosion was heard at the scene soon after 9am local time. According to Le Figaro, police detonated a car belonging to the suspect after weapons were found inside.

Merah, who is of Algerian descent, previously was arrested in Kandahar, Afghanistan, and was known to France's DCRI domestic intelligence agency, AFP reported.

Merah was jailed for three years in Afghanistan after his arrest in December 2007 for planting explosives but escaped six months later during a Taliban jailbreak, Reuters reported, citing Kandahar's prison governor.

French interior minister Claude Gueant - who was ordered by President Nicolas Sarkozy to stay in Toulouse until the gunman was caught - said Merah told police he would surrender in the afternoon. Gueant said police wanted to take him alive.

The gunman threw a handgun out of the window, but police believe he has other weapons including an Uzi sub-machine gun, Le Figaro quoted Gueant as saying.

Merah was identified in the afternoon after Monday's shooting at a Jewish school. Police launched the raid at 3.10am local time, according to News.com.au.