Mohammed Merah, the Frenchman suspected of a spate of shootings in the Toulouse area, has not been arrested yet, but police have surrounded his flat and are trying to persuade him to surrender.
According to French prosecutors, Mohammed Merah planned more killings.
Anti-terror chief Francois Molins said suspect Mohammed Merah, 23, of Algerian descent, intended to kill a soldier and two police officers.
Mohammed Merah, who says he was trained by al-Qaeda, is suspected of murdering three soldiers and four Jewish people.
Police have surrounded his flat and are trying to persuade him to surrender. He is said to be heavily armed.
Earlier reports said he had been captured, but officials later rebuffed the claims.
The killings took place in and around Toulouse in three separate incidents earlier this month.
On 11 March, a soldier was shot and killed while waiting to see a man about selling his motorcycle.
Days later, two soldiers were shot and killed, and a third was wounded while waiting at a cash machine.
Then earlier this week, three children and an adult were shot and killed outside Ozar Hatorah Jewish school.
The four Jewish victims were buried in an emotional funeral in Jerusalem earlier.
In a news conference, Francois Molins said Mohammed Merah had planned to kill a soldier later on Wednesday and also had plans to target the police.
Francois Molins said the suspect had expressed no regret for the killings, but had said he wanted to kill more people and “bring France to its knees”.
President Nicolas Sarkozy has attended a memorial at a military base in nearby Montauban for the three murdered soldiers.
Nicolas Sarkozy earlier told Jewish community leaders that the gunmen had been planning more attacks before police had surrounded his apartment block.
Police moved into Mohammed Merah’s block after two officers were shot at when they tried to get into his flat.
Officials say he is heavily armed with a Kalashnikov high-velocity rifle, a mini-Uzi 9 mm machine pistol, several handguns and possibly grenades.
The five-storey block of flats was evacuated earlier, and police were also moving residents of nearby buildings.
Elsewhere in the city, police are hunting for accomplices and have detained several members of his family.
His mother was taken to the scene in the hope that she could persuade him to surrender, but she told police that she had no influence over her son.
Negotiators have been talking to Mohammed Merah all morning, but officials said he appeared to have no particular demands.
The suspect has said he acted to “avenge Palestinian children”.
Mohammed Merah admitted to receiving al-Qaeda training in Pakistan’s Waziristan area, and also said he had been to Afghanistan, prosecutors said.
He had apparently spent time in Pakistan and Afghanistan, where he was jailed for three years for planting bombs.
The prison director in Kandahar, southern Afghanistan, Gulam Farooq, said Mohammed Merah was arrested in 2007, but escaped in a Taliban-led break-out in 2008.