Hooded gunmen stormed the Paris offices of a weekly satirical magazine known for lampooning radical Islam, killing at least 12 people, including two police officers in the worst militant attack on French soil in recent decades.
One of the men was captured on video shouting "Allah!" as four shots rang out. Two assailants were then seen calmly leaving the scene.
A police union official said the assailants remained at liberty and there were fears of further attacks.
Charlie Hebdo (Charlie Weekly) is well known for courting controversy with satirical attacks on political and religious leaders and has published numerous cartoons ridiculing the Prophet Mohammad. The last tweet on its account mocked Abu Bakr al-Baghdadi, the leader of the militant Islamic State, which has taken control of large swathes of Iraq and Syria.
"This is a terrorist attack, there is no doubt about it," President Francois Hollande told reporters after rushing to the scene of the attack. His government raised France's security level to the highest notch and scheduled an emergency cabinet meeting.
A short amateur video broadcast by French television stations shows two hooded men outside the building. One of them sees a wounded policeman lying on the ground and strides over to him to shoot him dead at point-blank range. The two then walk over to a black saloon car and drive off.
In another clip on Television station iTELE, they are heard shouting: "We have killed Charlie Hebdo. We have avenged the Prophet Mohammad."
A police official said the gunmen fled towards the eastern Paris suburbs after holding up a car.
"There is a possibility of other attacks and other sites are being secured," Police union official Rocco Contento said.
Sirens could be heard across Paris as Prime Minister Manuel Valls said security would be ramped up at transport hubs, religious sites, media offices and department stores.
The White House said U.S. security officials were in contact with their French counterparts.
"If the perpetrators are still at large, we're going to track them down, and we’re going to work with the French to do that," a White House spokesman told MSNBC television.
Another 20 people were injured in the attack, including four or five critically. Police union official Contento described the scene inside the offices as "carnage."
Ten members of the Charlie Hebdo staff died in the attack, prosecutors said. Sources at the weekly said the dead included co-founder Jean "Cabu" Cabut and editor-in-chief Stephane "Charb" Charbonnier.
"About a half an hour ago two black-hooded men entered the building with Kalashnikovs (rifles)," witness Benoit Bringer told TV station iTELE. "A few minutes later we heard lots of shots."
In a video shot by journalist Martin Boudot from a rooftop near the magazine's offices, a man can be heard screaming "Allah"; then followed the sound of three or four shots.
"They're coming out. There are two of them," says a new voice on the video as two men appear in the frame, then raise their arms in a shooting posture.
France last year reinforced its anti-terrorism laws and is already on alert after calls from Islamist militants to attack its citizens and interests in reprisal for French military strikes on Islamist strongholds in the Middle East and Africa.
"I am extremely angry. These are criminals, barbarians. They have sold their soul to hell. This is not freedom. This is not Islam and I hope the french will come out united at the end of this," said Hassen Chalghoumi, imam of the Drancy mosque in Paris's Seine-Saint-Denis northern suburb.
Dozens of police and emergency services were at the site as police secured a wide perimeter around the shooting site, where a Reuters reporter saw a car riddled with bullet holes.
German Chancellor Angela Merkel was among European leaders condemning the shooting. "This abominable act is not only an attack on the lives f French citizens and their security. It is also an attack on freedom of speech and the press, core elements of our free democratic culture."
Late last year, a man shouting "Allahu Akbar" ("God is greatest") injured 13 by ramming a vehicle into a crowd in the eastern city of Dijon. French officials say several attacks were prevented in recent weeks and Valls has said France had "never before faced such a high threat linked to terrorism."
A firebomb attack gutted the headquarters of Charlie Hebdo in November 2011 after it put an image of the Prophet Mohammad on its cover in what it described as a Shariah edition. While there was no immediate claim for the shooting, one supporter of Islamic State suggested in a tweet the image of Mohammed was the reason for the attack.
The last major attack in Paris was in the mid-1990s when the Algerian Armed Islamic Group (GIA) carried out a spate of attacks, including the bombing of a commuter train in 1995 which killed eight people and injured 150.
By Nicholas Vinocur and Antony Paone, with reporting By Brian Love, Sophie Louet, Alexandria Sage, Gerard Bon, Dominique Rodriguez and Ali Abdelaty in Cairo and writing by John Irish and Mark John, all of Reuters.