The mastermind of the Paris terror attacks is believed to be one of the targets in the ongoing terror raids in a northern suburb of the city according to Sky news report.
It had initially been thought Abdelhamid Abaaoud was in Syria.
Shooting broke out in the early hours of the morning in Saint Denis, with reports that up to a number of people have been killed.
French media is reporting that a woman who was wearing a suicide belt was killed after detonating it. It was previously reported that a woman with an explosive device had been arrested.
It is believed another terrorist suspect was killed by a police sniper.
At least seven large explosions have been heard.
A number of police officers are believed to have been injured during the operation to capture suspects involved in Friday's attacks on the city.
A police official said there had been exchanges of gunfire and special SWAT teams are on the scene.
Sky News senior correspondent Michelle Clifford, at the scene, said: "We have just heard a massive explosion - and now another - although we're not sure where they are coming from.
"They may be grenades.
"We don't know if they were initiated by police or not.
"There are dozens and dozens of soldiers walking in the direction of the apartment carrying weapons - more and more are arriving to reinforce the presence on the ground.
"You cannot imagine any positive exit for those inside. There is no way out for those individuals."
A police official said it is believed up to five other heavily armed people are in the apartment with Abaaoud.
Local residents have been evacuated and an area around Place Jean Jaures has been sealed off.
The siege is unfolding in an area close to the Stade de France, one of the targets of a series of terrorist attacks on Friday in which 129 people were killed and more than 350 wounded.
Saint Denis Mayor Didier Paillard said public transport was suspended and that schools in the centre of town would not open on Wednesday.
This comes as it was revealed surveillance footage had been found showing that a suspected ninth terrorist could have been involved in the attacks.
The video, which has yet to be released by police, shows a third man was in a dark coloured car police believe was used by brothers Salah and Brahim Abdeslam as they gunned down Parisians in restaurants and bars at the weekend.
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