UPDATED 8.13pm: French police are involved in a prolonged shootout in the northern Paris suburb of Saint-Denis, where a Belgian Islamic State militant suspected of masterminding last week's Paris attacks is believed to be holed up.

Police and justice sources said Abdelhamid Abaaoud, 27, thought to have pulled the strings from Syria, was strongly believed to be among a group of people holed up in an apartment in the northern suburb near the national soccer stadium, one of the sites attacked by suicide bombers..

Shooting began at about 4.30am local time on Wednesday and police special forces of the RAID unit were still involved in exchanges of fire three hours later, witnesses said.

A police source said three suspects had been arrested so far.

A justice source said at least two had been killed, including a woman who blew herself up with a suicide belt.

The source said the operation was still under way shortly before 8pm (NZT) and police were still trying to "neutralise" two more suspects.

"There are men from RAID shooting from the rooftops," Djihane, a neighbour, said on France Inter radio. "We've been told to lie on the floor and not go to the windows."

Three policemen and one other person were hurt during the operation. There was no immediate official confirmation.

Newstalk ZB's correspondent in Paris Catherine Field told Rachel Smalley it began when police closed in on a man they believe could be the missing terrorist.

"There's quite a lot of gunfire and the crack police squad have been sent up there.

"I can't tell you much more than that at this time as it is still a developing situation at this stage, apparently police have been injured, more police reinforcements are being sent to the area."

Police have not confirmed reports that officers have been shot during the operation.

The operation took place near the Stade de France soccer stadium where three suicide bombers detonated their explosive belts and killed a passerby.

In all, at least 129 people died in last week's attacks, which have been claimed by the Islamist militant group Islamic State. Seven militants died in the assault.
Two are known to be on the run.