Two people were hurt in the blast at the U.S.-owned factory near Lyon in southeastern France, the French President said.
On a day when terrorist attacks also took place on two other continents, French authorities were particularly alarmed -- especially after finding two banners or flags, inscribed with Islamic writing, hanging with the victim's head. A decapitated body was found in the suspect's van.
In Tunisia, three gunmen opened fire on beachgoers
at an oceanfront hote in Sousse, leaving 37 dead and 36 wounded, many of them foreign nationals, the country's health ministry said, according to the state-run TAP news agency.
French President: 'The intention was to provoke an attack'
The attack at the factory in Saint-Quentin-Fallavier, about 30 kilometers (18.6 miles) outside of Lyon, began in the morning when a delivery van entered the gates, said Paris Prosecutor François Molins, whose office handles anti-terrorism cases throughout France.
The van had been used to make deliveries there, and the driver was recognized as a delivery employee, so it was allowed through.
Security cameras lost sight of the van until seven minutes later, when the van is seen accelerating toward a warehouse containing canisters of acetone, liquid air and gas, Molins said. A minute later came an explosion so huge that it was heard two miles away, residents told CNN.
"There is no doubt that the intention was to provoke an attack, an explosion," French President François Hollande said.
Firefighters arrived five minutes later and soon found the suspect in the warehouse trying to open canisters of acetone, Molins said. They took him into custody.
The warehouse was damaged and the roof and back of the van were destroyed by the blast, he said. Inside the van, firefighters found a knife and decapitated body, which Molins said was that of a 54-year-old man who was in charge of the transport company where the suspect worked.
Authorities then discovered the victim's head hanging on the factory's fence with the flags.
Suspect had been on terrorist watch list
Raymond Feyssaguet, the mayor of the nearby town of Villefontaine, identified the suspect as Yassin Salhi.
The suspect has three children and has been married for 10 years, Molins said. He does not have a police record, but in 2006 he was put on the terrorist watch list and "he continued to attract the attention of the intelligence services, particularly with regard to the Lyon region," he said.
The suspect's wife and sister and another person were also taken into custody. They are being investigated for involvement in a terrorist conspiracy, Molins said.
The prosecutor said investigators are still trying to piece together other details of the attack such as where the victim was killed, the suspect's route, and what the motive was.
Though Molins said the flags were inscribed with the profession of faith of Islam, Interior Minister Bernard Cazeneuve said the writing on the flags had not yet been translated. He also did not specify what language it was in.
Cazeneuve also said the suspect, from a Lyon suburb, was in touch with Muslim fundamentalist Salafists.
Hollande expressed his condolences and solidarity with the victims, including two injured at the scene, and urged the French people to remain united and "not to give in to fear."
Security is stepped up
France raised security across the Rhone-Alpes region to its maximum level for the next three days, Hollande told reporters, CNN's French affiliate BFMTV reported.
The attack came the same week that France's Parliament passed a law giving expanded powers to security services. Such efforts have been hastened by several recent attacks, including the Islamist terror attacks in January on the offices of satirical Charlie Hebdo magazine and a kosher supermarket in Paris.
The U.S. firm that owns the factory, Air Products & Chemicals
, said it is working closely with all relevant authorities following Friday's attack.
The company, which supplies gases for industrial use, said it had stepped up security at its other locations worldwide as a precaution.
U.S. President Barack Obama was briefed on the attack, a senior administration official said.