William Hague has condemned the killing of a Briton in the Algerian gas field hostage crisis as "cold-blooded murder" as forces surround the Islamist gunmen.
One Briton and an Algerian were killed when an al Qaeda-backed group stormed the In Amenas facility, which is part owned by BP, and seized 41 westerners.
Another six were wounded in the attack, which the group claims is retaliation for the French military intervention against al Qaeda-backed rebels in neighbouring Mali.
The raid is believed to have been planned by Mokhtar Belmokhtar, a one-eyed Islamist known as Mr Marlboro and The Uncatchable.
His group goes under various names including Khaled Abul Abbas Brigade, the Masked Ones and The Blood Battalion and is said to be linked to al Qaeda in the Islamic Maghreb.
Mr Hague said he was sceptical the raid was carried out retaliation for the offensive in Mali.
The attack took place close to the border with Libya Speaking during a visit to Australia, the Foreign Secretary said: "That is a convenient excuse, but usually operations like this take longer to plan.
"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."
Algerian Interior Minister Dahou Ould Kablia, speaking on national television, said Algiers would not negotiate with "terrorists" and said the plant was surrounded by army and security forces.
A rapid deployment team has also been sent from the Foreign Office to reinforce British embassy and consular staff in Algeria.
Mr Hague added: "A number of people are held hostage. This does include a number of British nationals. This is therefore an extremely dangerous situation.
"We are in close touch with the Algerian government, the Algerian military have deployed to the area and the Prime Minister has spoken to the prime minister of Algeria."
BP operates the gas plant with Statoil and Algerian state firm Sonatrach Downing Street said Prime Minister David Cameron "expressed his sympathy and support" when he spoke to Abdelmalek Sellal on Wednesday evening.
The Irish government has said a 36-year-old Irish national was among the hostages. He was believed to be unharmed.
The Algerian interior ministry said the attack began when three vehicles carrying heavily armed militants ambushed a bus carrying employees from the gas plant to a nearby airport.
They were initially driven off, but then headed for the main complex.
A statement from the ministry said: "After their failed attempt, the terrorist group headed to the complex's living quarters and took a number of workers with foreign nationalities hostage."
The militant group Katibat Moulathamine - "The Masked Ones" - later contacted a news agency in the Saharan state of Mauritania to claim that the raid was carried out by the Blood Battalion.
A spokesman for the Katibat told the Sahara Media Agency that 41 westerners of nine or 10 nationalities had been taken hostage, including seven Americans.
Five foreigners were being held in a factory, while 36 others were in living quarters at the plant, claimed the spokesman, who said the action was carried out in retaliation for Algeria allowing France to use its airspace to carry out raids on northern Mali.
Britain has provided two RAF C-17 transport aircraft to support the operation as well as offering to share intelligence with Paris.
The In Amenas facility, near the Libyan border, is jointly operated by BP, the Norwegian company Statoil and the Algerian state oil company Sonatrach.
BP said in a statement that there was "an ongoing security incident" in the gas field, which was "attacked and occupied by a group of unidentified armed people" at about 5am UK time.
The attack happened as EU foreign ministers were preparing to meet in Brussels to discuss plans to send a 400-strong military training mission to Mali.
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