William Hague has condemned the killing of a Briton in the Algerian gas field hostage crisis as "cold-blooded murder" as forces surround the Islamist gunmen.
One Briton and an Algerian were killed when around 20 attackers from an al Qaeda-backed group stormed the In Amenas facility, which is part owned by BP.
They have seized 41 Westerners, including several Britons.
Six people were wounded in Wednesday's attack, which the group claims is retaliation for the French military intervention against al Qaeda-backed rebels in neighbouring Mali.
The raid is believed to have been planned by Mokhtar Belmokhtar, a one-eyed Islamist known as Mr Marlboro and The Uncatchable.
His group goes under various names including Khaled Abul Abbas Brigade, the Masked Ones and The Blood Battalion and is said to have links with al Qaeda in the Islamic Maghreb, a Mali-based militant group that wants to overthrow Algeria's government.
The attack took place close to the border with Libya Mr Hague said he was sceptical the raid was carried out retaliation for the offensive against Islamist fighters in Mali.
Speaking during a visit to Australia, the Foreign Secretary said: "That is a convenient excuse, but usually operations like this take longer to plan.
"Whatever excuse is being used by terrorists and murderers, there is no excuse. This is the cold-blooded murder of people going about their business."
Algerian interior minister Dahou Ould Kablia said Algiers would not negotiate with "terrorists".
Sky's Special Correspondent Alex Crawford, who is in Mali, said: "If negotiations are being ruled out and talks fail, then the only other option is some sort of rescue operation. It's very tense all round."
The plant has been surrounded by Algerian army and security forces, with army helicopters flying overhead. An Algerian security official has said the government is in talks with the US and France over whether an international force could help.
A rapid deployment team has also been sent from the Foreign Office to reinforce British embassy and consular staff in Algeria.
Mr Hague added: "A number of people are held hostage. This does include a number of British nationals. This is therefore an extremely dangerous situation."
Algerian forces are surrounding the plant, with army helicopters overhead Downing Street said David Cameron "expressed his sympathy and support" when he spoke to Algerian prime minister Abdelmalek Sellal on Wednesday evening.
The Irish government has said a 36-year-old Irish national was among the hostages. He was believed to be unharmed.
The Algerian interior ministry said the attack began when three vehicles carrying heavily armed militants ambushed a bus carrying employees from the gas plant to a nearby airport.
They were initially driven off, but then they were taken to the main complex.
The ministry said: "After their failed attempt, the terrorist group headed to the complex's living quarters and took a number of workers with foreign nationalities hostage."
The militant group Katibat Moulathamine - The Masked Ones - later contacted a news agency in the Saharan state of Mauritania to claim responsibility.
A spokesman for the Katibat told the Sahara Media Agency that Westerners of nine or 10 nationalities had been taken hostage, including seven Americans.
Five foreigners were being held in a factory, while 36 others were in living quarters at the plant, claimed the spokesman, who said the action was carried out in retaliation for Algeria allowing France to use its airspace to carry out raids on northern Mali.
Britain has provided two RAF C-17 transport aircraft to support the operation as well as offering to share intelligence with Paris.
The In Amenas facility, near the Libyan border, is jointly operated by BP, the Norwegian company Statoil and the Algerian state oil company Sonatrach.
BP said there was "an ongoing security incident" in the gas field, which was "attacked and occupied by a group of unidentified armed people".
The attack happened as EU foreign ministers were preparing to meet in Brussels to discuss plans to send a 400-strong military training mission to Mali.
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