French counter-terror agents, soldiers and police are conducting a massive, nation-wide manhunt for the gunman responsible for a deadly shooting attack on a popular Christmas market.

Police union officials say the shooter, identified as 29-year-old Cherif Chekatt, shouted “Allah Akbar” (God is greatest) during the attack at the Strasbourg market that left two people dead and 12 others wounded, six of them gravely.

French police had issued an arrest warrant for Chekatt just hours before the shooting over an alleged attempted murder.

Police have revealed they seized a grenade, a rifle and knives from Chekatt’s home shortly before the attack.

Police officials said Chekatt had 27 criminal convictions for theft and violence and served time in French, German and Swiss prisons.

He was flagged for radicalism in prison in 2015 and put on the “Fiche S” radical watch list.

French police issued a wanted poster for the suspected gunman. Photo AAP

Prosecutor Remy Heitz said the suspected gunman was shot in the arm during an exchange of fire with French soldiers. He then took a taxi to another part of the city, boasting of the attack to the driver.

He then exchanged more gunfire with police before disappearing. 

Mr Heitz said the man attacked his victims with a handgun and a knife.

French authorities had previously put the death toll at three victims, but  Mr Heitz said two people were confirmed dead while the third was brain dead. 

Witnesses described shots and screams after the gunman opened fire around the Christmas market on Tuesday evening (local time) in a city that’s home to the European Parliament, considers itself a capital of Europe – and promotes itself as the “capital of Christmas”.

People light candles following the Christmas market shooting on December 12. Photo: Getty

For several hours swaths of the city were under lockdown.

The French government raised the security alert level and sent police reinforcements to Strasbourg, where hundreds of police and soldiers were involved in the search.

While a terrorism investigation has been opened, the official motive of the attack is unclear.

Although authorities urged people in the area to stay inside after the attack, Strasbourg mayor Roland Ries told BFM television on Wednesday that “life must go on” so that the city doesn’t cede to a “terrorist who is trying to disrupt our way of life”.

-with AAP