Algerian troops Thursday launched strikes on a gas complex where Islamists are holding dozens of foreigners killing nearly 50 people, most of them hostages, the kidnappers said.
Britain, France and Norway, all of which have nationals among the hostages, confirmed an operation was underway at the remote site attacked on Wednesday in retaliation for a week-old military assault in neighbouring Mali.
Algeria's APS news agency reported that 600 Algerian hostages had been freed in a rescue operation.
It also said the Algerian army freed four hostages, including two Britons, a Frenchman and a Kenyan
A member of the "Signatories for Blood", a group which has claimed the brazen hostage-taking at the In Amenas gas field near the Libyan border, said Thursday that Algerian troops had attacked the site.
"Thirty-four hostages and 15 kidnappers were killed in an (air) raid by the Algerian army," the spokesman told Mauritanian news agency ANI, adding that among the dead was the chief hostage taker Abu al-Baraa.
His group had claimed to be holding 41 foreigners, including French, British and American citizens along with dozens of Algerian staff. Several countries have said they have nationals at the site.
The Nouakchott-based ANI often carries reliable reports from Al-Qaeda linked groups.
A British Foreign Office spokesman told AFP that the "Algerian authorities have confirmed that there is an ongoing operation" but there was no official word from Algiers.
The hostage drama dragged Algiers and several top Western powers into the Mali conflict, taking the spotlight off French and government troops battling the Islamists controlling the country's vast desert north.
Veteran Islamist fighter Mokhtar Belmokhtar, an Algerian with ties to Al-Qaeda, has claimed responsibility for attacking the plant, jointly operated by British oil giant BP, Norway's Statoil and state-run Algerian energy firm Sonatrach.
"We demand the Algerian army pull out from the area to allow negotiations" to end the drama, Abu al-Baraa, had earlier told the Al-Jazeera news channel.
He also said Algerian snipers had opened fire at the site where the hostages were held, injuring a Japanese national. Algeria has insisted it would not negotiate with the gunmen.
Al-Baraa confirmed there were "around 41" hostages from several countries -- Austria, Norway, France, the United States, Britain, Romania, Colombia, Thailand, the Philippines, Ireland, Japan, South Korea, and Germany.
The one-eyed jihadist Belmokhtar was until recently one of the leaders of Al-Qaeda in the Islamic Maghreb (AQIM) but was pushed out of the group towards the end of last year. He has been blamed for previous abductions and the killings of both Algerians and foreigners.
The UN special envoy for the Sahel, Romano Prodi, said underscored that the French intervention in Mali was the only way to stop Islamists creating "a terrorist safe haven in the heart of Africa".
"I'm not a warmonger and in the past, faced with other episodes of war, as in Libya, I expressed doubts. But in this case, it seems to me that there were no other means of action to avoid the worst," the Italian former prime minister told the newspaper L'Unita.
On Thursday, more French troops poured into Mali, boosting their number to 1,400, the defence minister said. At full strength the force will be made-up of 2,500 soldiers.
Contingents from Chad and Nigeria for an eventual African force of over 5,000 troops in Mali were also expected to arrive Thursday.
A French defence ministry source said there were "clashes in several areas" in the conflict zone, but "no fighting in the area of Diabaly" some 400 kilometres (250 miles) north of the capital Bamako.
The French army chief of staff, Bertrand Ract-Madoux, meanwhile said that the recently deployed reinforcements included infantry, armour, supply and logistics units deployed under the Guepard (Cheetah) rapid-reaction system.
Rebels who have controled northern Mali since April pushed south into government-held territory last week and seized Konna, about 700 kilometres (400 miles) by road from the capital Bamako, prompting France to intervene.