Officials are preparing for multiple British casualties after the Algerian hostage crisis, the BBC has learned.
David Cameron said the country should prepare for bad news after postponing a long-awaited speech on Europe.
Britons were among a group of foreign nationals taken hostage at a gas plant near In Amenas. One is confirmed dead, the fate of other hostages is unclear.
The operation by Algerian military to gain control of the site is over, but the number of casualties is unclear.
Four foreigners were reportedly freed but others died, the state news agency reported.
'Still being searched'
The BBC's political editor, Nick Robinson, said Whitehall sources had said ministers were still awaiting information from the Algerian government on the number of British dead, injured and missing.
"It is feared that as yet unconfirmed reports of as many as 35 dead of all nationalities will prove to be correct," our correspondent said.
"Although the major military operation is over the British government has been told that the gas plant is still being searched to see if people are hiding or, if there are still groups of terrorists who have not yet been located," he said.
A Briton and Algerian were confirmed dead on Wednesday, after kidnappers entered the plant.
Mr Cameron said the country faced "a very bad situation".
"A number of British citizens have been taken hostage. Already we know of one who has died.
"The Algerian armed forces have now attacked this compound. It is a very dangerous, a very uncertain, a very fluid situation and I think we have to prepare ourselves for the possibility of bad news ahead," he said.
UK Foreign Secretary William Hague is to cut short a visit to Australia due to the hostage crisis, while ministers are planning to make a statement to Parliament on Friday morning to update MPs.
The BBC's deputy political editor, James Landale, said: "Officials say that the information coming out of Algeria remains incomplete.
"They say that the PM made the decision to postpone his speech in the Netherlands at tea time after a meeting of the emergency response committee Cobra and a phone call with the Algerian prime minister," our correspondent added.
Downing Street earlier said the prime minister had spoken to President Obama and they had agreed their priority was to establish the facts on the ground.
Shadow foreign secretary Douglas Alexander said the reports of the "grave and tragic events" were "deeply concerning".
NI man freed
Algerian soldiers had been surrounding the facility near In Amenas that kidnappers occupied on Wednesday.
The Algerian communications minister, Mohamed Said Belaid, said the operation "was successful in neutralising a large number of terrorists and freeing a large number of hostages".
"But unfortunately and we are sorry to say there were some deaths and injuries. We do not yet have a definitive figure."
Militants had said they were holding 41 foreign nationals.
The gas facility's part operator, BP, said earlier there were unconfirmed reports of casualties and of hostages being released or escaping.
No 10 said Mr Cameron was not informed of the operation in advance and only learned of it when he phoned his Algerian counterpart at 11:00 GMT.
Earlier, the family of a Northern Irish hostage said he had been freed and was safe.
Stephen McFaul, 36, who was travelling on an Irish passport, was being held along with other foreign nationals.
His 13-year-old son, Dylan, has said he cannot wait to give his father "a big hug".
Another hostage is also reportedly from Northern Ireland. The MP, Ian Paisley jnr, says he was called to the Foreign Office for a briefing about a constituent, a man from north Antrim who was travelling on a British passport.
Meanwhile, the Algerian state media says that some hostages have escaped or been liberated, including two from Scotland, one from France and one from Kenya.
Algerian Interior Minister Daho Ould Kablia said the kidnappers were Algerian and operating under orders from Mokhtar Belmokhtar, a senior commander of al-Qaeda in the Islamic Maghreb (AQIM) until late last year.