French troops battled Islamist rebels in Mali Wednesday in a war that escalated as Al-Qaeda-linked fighters claimed to have taken 41 foreigners hostage in a retaliatory attack in neighbouring Algeria, with two reported dead.

After days of airstrikes on Islamist positions in the northern territory the rebels seized in April, French and Malian ground forces battled the insurgents in the central towns of Diabaly and Konna, north of the capital, Bamako.

In a dramatic development over the border in Algeria, Islamists claimed to hold 41 foreign hostages, including seven Americans, after an attack on a gas field in the country's east.

Algerian media reported the dawn attack on a gas field had left two foreigners -- including a Briton -- dead, and six injured.

"Forty-one westerners including seven Americans, French, British and Japanese citizens have been taken hostage," a spokesman for the Islamists told the Mauritanian News Agency and Sahara Media.

One of the militants earlier told AFP the kidnappers belonged to a group run by former Al-Qaeda in the Islamic Maghreb (AQIM) leader Mokhtar Belmokhtar.

"We are members of Al-Qaeda and we came from northern Mali," he told AFP by telephone in claiming responsibility for the attack.

French President Francois Hollande said the kidnapping of the French nationals had not been confirmed.

The extremists demanded the release of 100 Islamists held in Algeria in exchange for their hostages, a worker at the site told AFP.

"(They) have demanded that these (detained) Islamists be taken to northern Mali," added the source, speaking by telephone.

Earlier, Algeria's Interior Minister Dahou Ould Kablia said that Algiers would not negotiate with the "terrorists".

The attack was the first reprisal by the Islamists for the French assault that began on January 11. It comes after Algeria threw its support behind the Mali offensive and opened its airspace to French fighter jets.

The French defence ministry warned of an "intensified" threat of attack and kidnapping in the Sahel. The country has already boosted security on home soil after threats of reprisals.

As the offensive continued, Mali's interim president Dioncounda Traore visited French troops in Bamako, vowing: "Together we will win the war" against "the darkness threatening the entire world."

On Wednesday French troops waged a ground battle in Diabaly, a town seized two days earlier by fighters led by Algerian Abou Zeid, one of the leaders of AQIM.

"The special forces are currently in Diabaly, in close-quarter combat with the Islamists. The Malian army is also in place," a Malian security source said on condition of anonymity.

Clashes also took place not far from the town of Konna, whose seizure last week prompted the French intervention, security sources said.

The French military said it had secured a strategic bridge on the Niger river near the town of Markala, south of Diabaly, blocking a key route to Bamako.

French Defence Minister Jean-Yves Le Drian said the western zone where Diabaly lies was home to "the toughest, most fanatical and best-organised groups. It's under way there but it's difficult."

-- ICC launches Mali war crimes probe --

The Hague-based International Criminal Court said it had launched a war crimes probe targeting the rebels as rights groups and military sources bemoaned the deployment of child soldiers and use of the population as human shields.

"Different armed groups have caused havoc and human suffering through a range of alleged acts of extreme violence," chief prosecutor Fatou Bensouda said in a statement.

"I have determined that some of these deeds of brutality and destruction may constitute war crimes."

In Washington, the White House said it was closely monitoring developments in Algeria after the dawn raid on a bus carrying engineers near a gas field.

The gas field, jointly operated by British oil giant BP, Norway's Statoil and state-run Algerian energy firm Sonatrach, is located 1,300 kilometres (810 miles) southeast of Algiers, close to the Libyan border.

"We are... in touch with the Algerians and our other partners in the region," National Security Council spokesman Tommy Vietor told AFP. He did not confirm that Americans were among the hostages.

An Algerian lawmaker said one French national and four Japanese were taken hostage. The Irish foreign ministry said a man from Northern Ireland was also among the hostages. A Norwegian man was also reported seized.

As offers of non-military support for the Mali assault continued to pour in -- with Germany pledging two transport planes and Italy logistical support -- Ivory Coast's leader Alassane Ouattara urged all European partners to "mobilise".

A first contingent of 190 Nigerian troops was due in Bamako as part of a regional force of over 3,000 soldiers from west African nations.

France says its troops will triple from 800 at present to 2,500 men, and are pitted against some 1,300 Islamic fighters.

The UN and aid agencies report some 370,000 Malians have been displaced by the fighting.

Mali has been effectively split in two since April 2012, when Islamists took advantage of a military coup in Bamako and an offensive launched by Tuareg separatists in the north to seize half the country.

Western countries had voiced fears the vast desert zone could become Al-Qaeda's leading global safe haven and be used to launch attacks on targets in Europe.

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