STRASBOURG, France - A gunman on a security watchlist killed three people and wounded a dozen others near the picturesque Christmas market in the historic French city of Strasbourg on Tuesday evening before fleeing.

Interior Minister Christophe Castaner said the shooter had evaded a police dragnet and was on the run, raising concerns of a follow-up attack.

"The government has raised its security threat to the highest level and is bolstering border controls," Castaner told a late-night news conference. "We will also reinforce security at all Christmas markets to prevent copycat attacks."

With France still on high alert after a wave of attacks commissioned or inspired by Islamic State militants since early 2015, the counter-terrorism prosecutor opened an investigation.

Police identified the suspect as Strasbourg-born Cherif Chekatt, 29, who was known to the intelligence services as a potential security risk.

Castaner said the gunman exchanged shots with security forces twice as he escaped. His whereabouts now were unknown, and elite commandos and helicopters were involved in the manhunt.

The Paris prosecutor said the motive for the attack was not known. No one immediately claimed responsibility, but the US-based Site intelligence group, which monitors jihadist websites, said Islamic State supporters were celebrating.

The attack began at about 8 pm (1900 GMT) as stallholders prepared to close down and restaurants filled in the city, which sits across the Rhine River from Germany. Bystanders were swiftly ushered into nearby shops.

"There was confusion initially but they locked the front doors pretty soon after the gunshots," said US citizen Elizabeth Osterwisch, who was sheltering on the top floor of the Galeries Lafayette department store. "They moved us several times, eventually settling on the place with the most protection."

European Parliament lawmaker Emmanuel Maurel said he had heard the shots.

"From my hotel window I saw passersby dragging someone who was injured and onlookers panicking," he tweeted. "Soldiers and police have cordoned off the area. We're being told to stay in the hotel."