The fugitive Strasbourg man suspected of shooting people as he shouted "Allahu Akbar" at the French city's Christmas market is a criminal who turned radical Islamist in jail, officials said.

A manhunt is continuing today for the suspect, identified by authorities as 29-year-old French citizen Cherif Chekatt.

He has 27 criminal convictions for theft and violence, officials said, and has spent time in French, German and Swiss prisons.

Now police are seeking him as the suspect who killed two people, and seriously injured several more last night. Police today released photographs of Chekatt as the hunt continues.

Cherif Chekatt (Pic: French Police)

Neighbours believed that Chekatt's brother was a radicalised Muslim, but they remember the suspect as an ordinary local guy.

However to security agencies, Chekatt had represented a potential threat for some time, his beliefs hardened behind bars.

Paris prosecutor Remy Heitz said the suspect shouted out "Allahu Akbar" during the attack.

"Considering the target, his way of operating, his profile and the testimonies of those who heard him yell 'Allahu Akbar', the anti-terrorist police has been called into action," Mr Heitz said.

Interior Minister Christophe Castaner said the gunman had evaded a police dragnet and was on the run, raising concerns of a follow-up attack.

The mother, father and two brothers of the suspect are being held in custody for questioning, said sources close to the investigation.

"The government has raised its security threat to the highest level and is bolstering border controls," Mr Castaner told a late-night news conference.

"We will also reinforce security at all Christmas markets to prevent copycat attacks."

With France still on high alert after a wave of attacks commissioned or inspired by self-styled Islamic State militants since early 2015, the counter-terrorism prosecutor opened an investigation.

Mr 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.

Police officers at the Franco-German border in Kehl check all vehicles leaving Strasbourg

The Paris prosecutor said the motive for the attack was not known. No-one immediately claimed responsibility, but the US-based SITE Intelligence Group, which monitors jihadist websites, said Islamic State supporters were celebrating.

The attack began at about 8pm as stallholders prepared to close down and restaurants filled in the city, which sits across the Rhine River from Germany. Bystanders were swiftly ushered into nearby shops.

"There was confusion initially but they locked the front doors pretty soon after the gunshots," said US citizen Elizabeth Osterwisch, who was sheltering on the top floor of the Galeries Lafayette department store.

"They moved us several times, eventually settling on the place with the most protection."

MEP Emmanuel Maurel said he had heard the shots and the European Parliament, which is sitting in Strasbourg this week, was put into lockdown.

On the opposite side of the River Rhine, German police also tightened border controls, officials said.

The Strasbourg prefecture said the gunman was on an intelligence services watchlist.

Sources familiar with the police operation said the suspect’s home had been raided earlier in the day in connection with a robbery during the summer, but he was not found there.

A Reuters reporter was among 30 to 40 people being held in the basement of a supermarket for their own safety, waiting for police to clear the area. Lights were switched off and bottles of water handed out.

Security was tight this year for the Christmas market, which is popular with visitors to the city’s old quarter, with its Gothic cathedral and half-timbered houses.

Unauthorised vehicles were excluded from surrounding streets during opening hours and checkpoints were set up on bridges and access points to search pedestrians’ bags.

European Commission President Jean-Claude Juncker tweeted: "My thoughts are with the victims of the Strasbourg shooting, which I condemn with the utmost firmness. Strasbourg is an excellent symbol of peace and European Democracy. Values that we will always defend."

Some 26,000 individuals suspected of posing a security risk to France are on the "S File" watchlist, of whom about 10,000 are believed to have been radicalised, sometimes in fundamentalist Salafist Muslim mosques, online or abroad.

European security agencies have feared for some time that Islamist militants who left Europe to fight for the so-called Islamic State in Syria and Iraq would return after the jihadist group’s defeat, with the skills and motivation to carry out attacks at home.

Secular France has been grappling with how to respond to both homegrown jihadists and foreign militants following attacks in Paris, Nice, Marseille and beyond since 2015.

In 2016, a truck ploughed into a Bastille Day crowd in Nice, killing more than 80 people. In November 2015, coordinated Islamist militant attacks on the Bataclan concert hall and other sites in Paris claimed about 130 lives.

There have also been attacks in Paris on a policeman on the Champs-Elysees, the offices of satirical weekly publication Charlie Hebdo and a kosher store.

Almost exactly two years ago, a Tunisian Islamist rammed a hijacked truck into a Christmas market in central Berlin, killing 11 people as well as the driver.