"The intent was without doubt to cause an explosion. It was a terrorist attack," said Francois Hollande in Brussels, cutting short an EU summit to chair emergency meetings in the French capital.
Hollande said a vehicle driven at high speed by "one person, maybe accompanied by another" smashed into the factory, about 40 kilometres from Lyon.
"At the time I am speaking, there is one dead and two injured," said a grim-faced Hollande, calling for "solidarity" for the victim, who was found with Arabic inscriptions on him.
And the gruesome killing came nearly six months after the Islamist attacks in and around Paris that left 17 people dead and started with a shooting at satirical magazine Charlie Hebdo.
The 35-year-old attacker, identified as Yassin Salhi, had been known to security services for a number of years but did not have a criminal record, Interior Minister Bernard Cazeneuve said.
The minister said a local firefighter who rushed to the scene of the attack had overpowered the suspect, praising him for his "courage and ... Cool head".
At least one other person is also being questioned as part of the investigation but there is no formal link with the attack, said sources close to the probe.
For months, Europe has been on high-alert for so-called "lone wolf" attacks that are very difficult to prevent after Islamic State fighters urged supporters to carry out assaults wherever they could.
"There was a decapitated body with inscriptions," said Hollande, although sources close to the enquiry said it was not clear whether the victim was transported to the site or whether the beheading was carried out at the factory.
The suspect entered the factory owned by American group Air Products and set off several small explosive devices, sources close to the investigation said, with at least two people hurt in the assault.
Police said it was unclear whether the attacker was acting alone, or had accomplices.
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