Terrorists in Belgium were just hours away from carrying out an attack, Belgian authorities said after a gunfight yesterday evening killed two jihadists. A third was arrested in a huge anti-terror operation that stretched into the night.

The police raid on a former bakery in the city of Verviers was another palpable sign that terror had seeped deep into Europe's heartland as security forces struck against returnees from Islamic holy war in Syria.

"As soon as I opened the window, you could smell the gunpowder," said neighbour Alexandre Massaux following a firefight with automatic weapons and Kalashnikovs that was punctuated by explosions.

Two suspects were killed and a third arrested and charged with belonging to a terrorist organisation.

"As soon as they thought special forces were there, they opened fire," federal magistrate Eric Van der Sypt said.

After the gun smoke lifted, police continued with searches in Verviers and the greater Brussels area, seeking more clues in a weeks-long investigation that started well before the terrorism spree last week that led to 17 deaths in the Paris area. The Belgian operations had no apparent link to the terrorist acts committed in France.

Unlike the Paris terrorists, who attacked the office of a satirical newspaper and a kosher grocery store, the suspects in Belgium were reportedly aiming at hard targets: police installations.

"They were on the verge of committing important terror attacks," Mr Van der Sypt said in Brussels.

Across Europe, anxiety has grown as the manhunt continues for potential accomplices of the three Paris terrorists, all of whom were shot dead by police. Authorities in Belgium signalled they were ready for more trouble by raising the national terror alert level from two to three, the second-highest level.

"It shows we have to be extremely careful," Mr Van der Sypt said. The Verviers suspects "were extremely well-armed men" equipped with automatic weapons, he said. Authorities have previously said 300 Belgian residents have gone to fight with extremist Islamic formations in Syria. It is unclear how many have returned.

"It sent shivers down my spine to think about it" that the suspects could have been trained in Syria, Mr Massaux said.

Prime minister Charles Michel said the increase in the threat level was "a choice for prudence".

"There is no concrete or specific knowledge of new elements of threat," he said.

The suspects in Verviers opened fire on police when officers closed in on them near the city's railway station, the magistrate said. There was an intense firefight for several minutes.

Video posted online showed a dark view of a building amid blasts, gunshots and sirens, and a fire with smoke billowing.

No police were wounded or killed in the clash, at the height of the evening rush hour in a crowded neighbourhood of the former industrial city of 56,000, about 80 miles south east of the capital Brussels.

Earlier, authorities said they were looking into possible links between a man they arrested in the southern city of Charleroi for illegal trade in weapons and Amedy Coulibaly, who killed four people in a Paris kosher market last week.

The man arrested in Belgium "claims that he wanted to buy a car from the wife of Coulibaly", Mr Van der Sypt said. "At this moment this is the only link between what happened in Paris."

Mr Van der Sypt said that "of course, naturally" we are continuing the investigation.

At first, the man came to police himself claiming there had been contact with Coulibaly's common-law wife Hayat Boumeddiene regarding the car, but he was arrested following a search of his premises when indications of illegal weapons trading were found.

A Belgian connection figured in a 2010 French criminal investigation into a foiled terrorist plot in which Coulibaly was one of the convicted co-conspirators. The plotters included a Brussels-area contact who was supposed to furnish both weapons and ammunition, according to French judicial documents obtained by The Associated Press.

Several other countries are also involved in the hunt for possible accomplices to Coulibaly and the other gunmen in the French attacks, brothers Cherif and Said Kouachi.

In Spain, authorities said Coulibaly drove Boumeddiene from France to Madrid on December 31 and was with her until she took a January 2 flight to Istanbul, Turkey.

Spain's National Court said it was investigating what Coulibaly did in the country's capital with Boumeddiene and a third person who was not identified but is suspected of helping Boumeddiene get from Turkey to Syria.

France is on edge since last week's attacks, which began at the satirical newspaper Charlie Hebdo. The paper, repeatedly threatened for its caricatures of the Prophet Mohammed, buried several of its murdered staff members yesterday even as it reprinted another weekly issue with Mohammed on its cover.

Defence sources said France was also under an unprecedented cyber-attack with 19,000 launched after the country's bloodiest terrorist attacks in decades, frustrating authorities as they try to thwart repeat violence.

Around 120,000 security forces are deployed to prevent future attacks.

Calling it an unprecedented surge, Admiral Arnaud Coustilliere, head of cyber-defence for the French military, said about 19,000 French websites had been attacked in recent days, some carried out by well-known Islamic hacker groups.

The attacks, mostly relatively minor denial-of-service attacks, hit sites as varied as military regiments to pizza shops but none appeared to have caused serious damage, he said. Military authorities launched round-the-clock surveillance to protect the government sites still coming under attack.

The Kouachi brothers claimed allegiance to al Qaida in Yemen and Coulibaly to the Islamic State group.