Nearly 100 out of the 132 foreign hostages kidnapped by Islamist militants have been freed from a gas plant in the Sahara desert, Algeria's state news service says .

The report by APS indicated a potential breakthrough in a bloody siege that began when militants seized the plant early on Wednesday.

The report, citing a security official, did not mention any casualties in the battles between Algerian forces and the militants. But earlier it had said that 18 militants had been killed.

It was not clear whether the remaining foreigners were still captive or had been killed in the Algerian military operation to free them that began yesterday.

Algerian special forces resumed negotiating today with the militants holed up in the refinery, according to the Algeria news service.

The militants, meanwhile, offered to trade two American hostages for terror figures jailed in the United States, according to a statement received by a Mauritanian news site.

Militants offered to trade two American hostages for the mastermind of the 1993 World Trade Centre bombing and a Pakistani scientist convicted of shooting at two US soldiers in Afghanistan.

The offer, according to a Mauritanian news site that frequently broadcasts dispatches from groups linked to al Qaida, came from Moktar Belmoktar, an extremist commander based in Mali who apparently masterminded the operation.