An exchange of fire between police and Islamist militants in southern Algeria  on Wednesday, resulted in the deaths of one police officer and two British security guards, French news website L'Express reported.
Early reports said the assailants abducted several foreigners including five Japanese nationals and a French citizen as part of an attack on the site run by British oil giant, BP .
A Western diplomat told AFP that British and Norwegian staff were also abducted.
The UK Foreign Office  called the attack a "terrorist incident".
AFP said the Algerian army launched an operation to free the hostages.
But according to reports from local website Algerie-Focus, 30 assailants are still occupying the site where around 600 staff usually work.
Algerie-Focus say that while the majority of Algerian employees were set free on Wednesday morning, a number of foreign workers are still being kept hostage.
The workers that were set free reportedly said that many of the kidnappers had foreign accents. And, according to a source cited by Algerian newspaper, Al Watan, one had a Libyan accent.
The BP attack comes as French forces are preparing to attack Islamist militants in Algeria's southern neighbor, Mali .