France: A priest is dead on Tuesday after being taken hostage in a church in northern France by two armed men who had links to the Islamic State (IS) terror group.

It appeared the priest's throat was slit, a source said.

The men arrived during morning mass in Saint-Etienne-du-Rouvray, a working-class town near Rouen, northwest of Paris, where the 85-year-old parish priest, Father Jacques Hamel, was leading prayers.

"They forced him to his knees and he tried to defend himself and that's when the drama began", said Sister Danielle, who escaped as the attackers slayed the priest.

"They filmed themselves. It was like a sermon in Arabic around the altar," the nun said.

Three other worshippers were held hostage until the assailants were killed, one of them was badly wounded during the attack.As the attackers came out of the church shouting "Allahu akbar" they were shot and killed by police.

French President Francois Hollande said the hostage takers were terrorists who had pledged allegiance to IS.Mr Hollande said the threat from Islamic militants had never been so great in France and Europe.

French Interior Minister Bernard Cazeneuve said, the Parisian anti-terror prosecutor would take on the investigation.According to the police, one person had been arrested in connection with the attack.