The mayor's office in the city of Toulouse referred the parents to prosecutors after they registered the child in August, which could lead to a family judge ordering them to change the child's name.
"The process is underway," the legal source said.
Though "jihad" can mean a personal and non-violent struggle against sin for Muslims, rather than an Islamic holy war, the word has become associated with the extremists who have attacked France repeatedly in recent years.
In November last year, the mayor's office in the Riviera city of Nice referred a family to the authorities after they gave their son the same name as Mohamed Merah, the gunman who killed seven people, including three Jewish schoolchildren, in 2012.
The parents later decided to give the child another name.
In 2013, a French mother from Nimes made headlines after she sent her son, named Jihad, to school wearing a T-shirt that read "I am a bomb" and "Jihad, born on September 11."
More than 200 people have been killed in a string of attacks in France in the past few years claimed by self- described jihadists spurred on or inspired by the Al-Qaeda and Islamic State groups.
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