Updates: 11:09 a.m. French police have captured the hostage taker alive. The hostages have been released.
10:56 a.m. Police say negotiations are underway. French prosecutor Michel Valet says gunman claims he is "acting not for money but for his religious convictions."
10:41 a.m. Two of the four hostages have been released unharmed.
An armed gunman is inside a local Toulouse CIC bank where he has taken four civilians hostage. The man entered the bank at 10:10 local time, initially demanding money. When he was refused, a shot was fired and hostages were taken. The hostages include the bank manager and three other people.
The gunman, who claims links to al-Qaeda, demanded to speak with the elite police force Raid who is responsible for the shooting of Islamist gunman Mohamed Merah.
Merah, who also claimed al-Qaeda links, killed seven people in Toulouse in March before he was shot dead by police.
The area surrounding the bank has been cordoned off and special police units have arrived from Marseille and Bordeaux.
Four hours into the hostage ordeal one woman hostage was freed in exchange for food and water, followed by the release of a second female hostage.
Public prosecutor Michel Valet says the gunman has made clear he is acting for religious purposes and not for money.
As of now, Raid police have not arrived on the scene.
This situation arrives just three months after Mohamed Merah shot and killed four people outside of a Jewish school in Toulouse.