Prosecutor Christophe Barret said a woman who works at the retirement home called police on Thursday night, local time, to say she had been attacked.
When the officers arrived, they found the body of another woman, gagged and tied up outside the building with three stab wounds, the gendarme spokesman said.
Elite police units and dozens of gendarmes arrived at the scene to join the operation to hunt for the man who was believed to be still inside the building and who was initially thought to have taken hostages.
But the attacker apparently managed to escape and was at large in the surrounding area. The search is continuing in a larger perimeter with help from a helicopter and police dogs.
"One woman, a resident was assassinated. The security forces have evacuated the residents, about 60, who are safe and sound," a local official told Reuters. The worker who alerted police did not suffer serious injuries but was deeply rattled, and no one else at the residence was harmed, the prosecutor said in televised remarks carried on the website of Midi Libre newspaper.
The residence, called Green Oaks, is operated by the African Missions Society, and takes in retired priests, nuns and others who have worked on missions in Africa.
Residents of the home "are very elderly, with an average age of 75, although some are more than 90", said Alain Berthet, a local councillor in Montferrier-sur-Luz.
Many of the residents require assistance to walk, he said.
"Nothing at this stage would indicate that this would be a terrorist act," another source said.
Olivier Ribadeau Dumas, spokesman for the French Catholic bishops' conference, tweeted condolences for the woman killed and added, "our prayers reach out also to the missionaries attacked in their retirement home in the Herault (region). God give them all peace".
France has been under a state of emergency for a year since Islamic State (Isis) group attacks on Paris killed 130 people.
At least 84 people were killed and 100 injured in the French city of Nice when a man deliberately drove a truck into a crowd celebrating the country's main national holiday in July last year.
Another Isis attack in July targeted a Catholic church in Normandy, where two attackers slit a priest's throat and held elderly parishioners hostage.
Suspects arrested last weekend under anti-terrorism measures had been planning to launch attacks on December 1 at important and landmark sites in and around Paris, a source said on Thursday.
- AP, AAP