The French Ministry of Interior has denied that suspected killer Mohammed Merah has been arrested.
The standoff outside of Mohmmed Merah's Toulouse apartment has been going on for more than 12 hours.
Police evacuated the building earlier on in the day.
BFM TV had cited sources saying the 24-year-old, who claims he is a member of the terrorist network al-Qaida had been arrested, but a spokesperson for Claude Gueant, France's interior minister denied the claims.
Gueant had previously said the suspect would surrender in the afternoon.
The fundamentalist Islamist militant has killed seven people, including three children, in three separate attacks.
He told the police he acted in "revenge for Palestinian children" and French military operations abroad.
Police said they found explosives in the car of one of Merah's brothers who was arrested earlier in the day, according to sources.
His brother is also said to be following a Salafi ideology, the AFP reported.
Merah is said to have visited Pakistan and Afghanistan, where he was allegedly arrested and jailed for three years for planting bombs.
The prison director in Kandahar, southern Afghanistan, Gulam Farooq, told the BBC that Merah was arrested in 2007, but escaped in a Taliban-led break-out in 2008.
President Nicolas Sarkozy has arrived in Toulouse where he is expected to talk to the media.