President Francois Hollande said France should not surrender to fear after a man was killed in what he described as a terrorist attack near Lyon.

Speaking in Brussels on 26 June during a summit of EU leaders, Hollande said he received the solidarity of his European colleagues, adding that strong action was needed to tackle Islamic extremism.

"There is great emotion - but emotion can't be the sole response. [The answer] is action, prevention and dissuasion," said Hollande. He urged unity, saying it was not the time to create useless divisions.

The French president spoke after the head of a decapitated man was found posted on the fence of a chemical gas company that was attacked by a man driving a vehicle in Saint-Quentin-Fallavier, south-eastern France.

The head was covered in Arabic script. Two flags sporting Arabic inscriptions were also found nearby.

The man's body was recovered near the gates of a factory belonging to Air Products, a US company headquartered in Allentown Pennsylvania, after a suspected Islamist militant rammed a vehicle into the site.

The car then hit some gas canisters, setting off an explosion that injured two people.

Hollande said there was no doubt the driver intended to cause an explosion, calling the attack "of a terrorist nature." The suspect was arrested at the scene by a firefighter, authorities said.

Interior minister Bernard Cazeneuve added they believed to have positively identified the attacker as Yassine Sali.

Sali had no criminal record but was placed under surveillance for possible Islamist links from 2006 to 2008.