Islamist militants have attacked and occupied a BP gas field in Algeria, taking dozens of foreigners hostage in what the British government says is an "ongoing terrorist incident".
Algeria's government said the raiders had killed two people - a Briton and a French national.
An Islamist militant group linked to Al Qaeda said the attackers were holding hostages, with some reports putting the number as high as 41, including Americans, British, French, Japanese and Norwegian nationals.
A DFAT spokeswoman said there were no reports of any Australians being involved.
Al Qaeda in the Islamic Maghreb said the raid had been carried out because of Algeria's decision to allow France to use its air space for attacks against Islamists in Mali, where French forces have been in action against Al Qaeda-linked militants since last week.
The Khaled Abu al-Abbas Brigade, a shadowy group linked to Al Qaeda and led by Mokhtar Belmokhtar, is claiming responsibility.
The one-eyed Belmokhtar is a former leader of Al Qaeda in the Islamic Maghreb.
The In Amenas gas field where the hostages have been taken is jointly owned by BP, Algerian state company Sonatrach and Norwegian oil company Statoil.
We do know that it is still a hostage situation, that employees on their way to work at an oil installation on the Libyan border, that they were attacked.
They were on a bus and a number of hostages were killed, a number were injured.
At least 13 oil company employees are still hostage along with a number of other people.
Africa correspondent Ginny Stein
The hostage takers are still in the facility and gas has been turned off.
The UK Foreign Office said it was dealing with an "ongoing terrorist incident" and convened a meeting of its emergency group COBRA.
Speaking in Sydney this morning, British foreign secretary William Hague said the crisis was "extremely dangerous", but would not confirm Algerian interior minister Dahou Ould Kablia's report that one Briton and an Algerian had been killed.
"A number of people are held hostage. This does include a number of British nationals. This is therefore an extremely dangerous situation," he said.
"Whatever excuse is being used by terrorists and murderers, there is no excuse. This is the cold-blooded murder of people going about their business."
The United States has confirmed that American citizens are among the hostages.
"I hope you will understand that in order to protect their safety, I'm not going to get into numbers, I'm not going to get into names, I'm not going to get into any further details as we continue to work on this issue with the Algerian authorities and also with their employers," US State Department spokeswoman Victoria Nuland said.
US secretary of state Hillary Clinton has telephoned Algeria's prime minister to discuss the incident, while secretary of defence Leon Panetta, speaking to reporters in Rome where he was on an official trip, said that "by all indications, this is a terrorist act".
"Obviously we're continuing to review the situation to determine exactly what happened," he said.
Mr Panetta said he did not have any firm information on the number of hostages nor on whether there were links to the situation in Mali.