Algerian troops have surrounded a gas facility in the east of the country where foreign workers are being held hostage by Islamist militants.
The kidnappers occupied the complex at In Amenas on Wednesday, after killing a Briton and an Algerian.
Algeria says some 20 foreign nationals are being held hostage, although the kidnappers say they have 41.
On Thursday, 30 Algerian workers escaped from the facility, the Algeria Press Service reported.
The foreign nationals held captive include British, Japanese, US, French and Norwegian.
Spokesmen for the militants say they have issued a list of demands. One statement purported to be from the hostage-takers called for an end to the French military intervention against Islamist rebels in Mali.
Border closed Algerian Interior Minister Daho Ould Kabila said the militants wanted to leave the country with the hostages, but he had refused to let them go.
"We reject all negotiations with the group," he told reporters late on Wednesday.
An Algerian security official told Associated Press the Algerian government was discussing with the US and France whether an international force could help end the stand-off.
Mr Kabila said that the kidnappers were Algerian and operating under orders from Mokhtar Belmokhtar, a senior commander of al-Qaeda in the Islamic Maghreb (AQIM) before late last year, when he set up his own armed group after apparently falling out with other leaders.
Mr Kabila said a heavily armed "terrorist group" had attacked a bus carrying workers from In Amenas at about 05:00 (04:00 GMT) on Wednesday.
The gas field is operated by the Algerian state oil company, Sonatrach, along with the British oil company BP and Norway's Statoil.
It is located about 1,300km (800 miles) south-east of Algiers, and about 60km (37 miles) west of the Libyan border.
The attackers were repelled by police who had been escorting the bus, but a Briton and an Algerian national had been killed, Mr Kabila said.
Two other British nationals, a Norwegian, two police officers and a security guard were also hurt in the fire fight, he added.
The foreign nationals were being held in one wing of the living quarters, which the security services and army had surrounded, Mr Kabila said.
"Since then, they've been facing off. The security forces are consolidating their position around the base," he added.
Early on Thursday, British Foreign Secretary William Hague confirmed that a Briton had died and that "a number" of others were being held hostage.
He described the killings as the "cold-blooded murder of people going about their business".
A worker told France's Le Figaro newspaper the captors had mined the facility and demanded food, water and vehicles.
Mr Kabila said nearby border crossings had been closed as a precaution and that the foreign ministry was in contact with diplomats from the hostages' countries.
He said the UK government was working "around the clock" to resolve the crisis.
US Secretary of Defence Leon Panetta said he could not confirm the exact number of Americans seized in the attack.
"By all indications this is a terrorist act and the United States strongly condemns these kinds of terrorist acts," he said.
Meanwhile Norwegian Prime Minister Jens Stoltenberg said 13 Norwegian employees of Statoil were believed held hostage at the gas facility. Irish Foreign Minister Eamon Gilmore said one of its nationals was a hostage.
Japanese news agencies, citing unnamed government officials, said there were three Japanese hostages.
France said on Thursday it could not confirm whether any French citizens were among the hostages.
'Disastrous outcome' Two groups led by Belmokhtar - the Khaled Abu al-Abbas Brigade and the Signed-in-Blood Battalion - said they were behind the incident.
Earlier, a man claiming to be a spokesman for the militants told BBC Arabic that al-Qaeda had carried out the attack.
A list of demands had been sent to Algerian authorities, and the hostages would be killed if troops attempted to rescue them, the spokesman added.
''Storming the gas complex would be easy for the Algerian military, but the outcome of such an operation would be disastrous," he warned.
In a statement carried on Mauritanian media, the Signed-in-Blood Battalion said it would hold the Algerian and French governments and the nations of the hostages responsible if its demands were not met, saying they must bring an end to the French intervention in Mali.
Militant groups have vowed to avenge the intervention, where French forces have been battling Islamists linked to AQIM for the past week.
Algeria has been allowing French aircraft to use its air space.