Prime Minister David Cameron has said the country should be "prepared for the possibility of further bad news" in the hostage crisis in Algeria.
With a confused picture of what is happening on the ground following an Algerian military operation, Mr Cameron has postponed his speech on Europe in the Netherlands that was due on Friday to stay in Downing Street.
One British citizen is known to have died in the crisis and several others have been caught up in it.
Mr Cameron said: "It's a fluid situation, it's ongoing, it's very uncertain. We should be prepared for the possibility of further bad news, very difficult news, in this extremely difficult situation."
The Government has confirmed that there are "several" British nationals among the foreign hostages held by Islamist militants at the gas plant at In Amenas, deep in the Algerian desert.
Mr Cameron said: "We face a very bad situation at this BP gas compound in Algeria. A number of British citizens have been taken hostage. Already we know of one who has died. The Algerian armed forces have now attacked the compound."
He said officials in the Government's Cobra emergency committee, which he chaired twice on Thursday, were "working around the clock to do everything we can to keep in contact with the families, to build the fullest possible picture of the information and the intelligence we have".
The Prime Minister said he would "do everything I can to update people about what is a difficult and dangerous and potentially very bad situation". Foreign Office minister Alistair Burt said UK officials were pressing the Algerian authorities for access to UK nationals caught up in the violence.
He said: "Although details have yet to become final, I'm afraid we should be under no illusion that there will be some bad and distressing news to follow from this terrorist attack."
Foreign Secretary William Hague is returning early from a trip to Australia to deal with the crisis, the Foreign Office confirmed. A spokesman said he will leave "immediately after the high-level UK/Australia talks on defence, security and foreign policy issues".
The Press Association, photo by PM office