Algerian extremists allied with the Islamic State group appear to have decapitated a French hostage after France ignored their demand to stop air strikes in Iraq, according to a video released by a US terrorism watchdog.

A group calling itself Jund al-Khilafah said after abducting Herve Gourdel on Sunday that he would be killed within 24 hours unless France ended its air strikes against Islamic State (IS) fighters in Iraq.

The French government has insisted it will not back down.

Terrorism watchdog SITE Intelligence Group distributed a video by Jund al-Khilafah announcing Mr Gourdel's death.

Mr Gourdel was a 55-year-old mountaineering guide from Nice seized in the mountains of northern Algeria.

The video resembled those showing the beheadings of two American journalists and a British aid worker in recent weeks, but instead of showing President Barack Obama it showed French President Francois Hollande.

France started air strikes in Iraq on Friday, the first country to join the US military campaign against the IS fighters there.

"Our values are at stake," French Prime Minister Manuel Valls said after hearing about the video.

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