UPDATED 1.49PM: Belgian police have shot dead two suspected jihadists alleged to have been on the verge of a major terrorist attack in a new alarm for Europe days after 17 people were killed in Paris.

Prosecutors said a third suspect was arrested on Thursday after being wounded when militants with Kalashnikov assault rifles opened fire on police raiding a property in Verviers, eastern Belgium.

Police also conducted 10 searches in Brussels and its suburbs in an operation that came on the heels of last week's Islamist attacks on Charlie Hebdo magazine and a Jewish supermarket in Paris.

"This operational cell of about 10 people, some of whom had returned from Syria, was on the point of launching significant terrorist attacks in Belgium," Thierry Werts of the Belgian federal prosecutor's office said in Brussels.

"During the search, certain suspects immediately opened fire at special forces of the police with automatic weapons. They opened fire for several minutes. Two suspects were killed and a third was arrested."

No police or civilians were hurt in the operation in Verviers, a city with a large Muslim population close to the German border, about 125 kilometres from Brussels, prosecutors said.

Belgian authorities later raised the terror alert for official buildings to its second-highest level, saying that the planned attack targeted police.

In video footage shown on Belgian television, gunshots and explosions could be heard for several minutes and a blaze apparently erupts in the property.

Werts said that "even after one of the suspects was lying on the ground injured, he continued to fire".

"I heard a sort of explosion, followed by several gunshots," one local resident told local TV station RTBF. "For the moment, I cannot tell you any more because I don't dare go out to see what is happening."

Another local resident said "machineguns were firing for about 10 minutes".

A third witness said he saw two young men apparently of North African origin "dressed all in black carrying a bag of the same colour", adding that the pair looked terrified.

The men targeted in a former bakery in Verviers had been under surveillance since returning from Syria a week ago and were believed to be about to spring an attack, prosecutors said.

Prosecutors said they'd found "no link at this stage" to the Paris attacks.