Shots were heard and there were reports of another manager of the home being tied up and gagged by the intruder, who was wearing a balaclava and carrying a shot gun and knife.
"A supervisor inside the building raised the alarm very discreetly," said a local police source, who confirmed that the siege was on going past 11pm.
"There are fears that two people have died - a man and a woman. The gunman is being hunted."
One source claims the gunman is still believed to be in the building which is surrounded by emergency services.
On entering the building, police found the body of an elderly woman who had been stabbed several times, another source said.
"Nothing at this stage would indicate that this would be a terrorist act," another source said.
According to BFMTV the woman was stabbed in the neck.
Armed Police are searching the rooms of the retirement home and it has so far been reported that at least 59 monks have been rescued.
"An individual, who was masked and armed with a knife and a sawn-off shotgun came into the retirement home where 70 monks live," one source said, adding that the man's motivations were unknown.
The home is in Montferrier-sur-Lez, north of Montpellier.
The nursing home for monks and priests was established since 1994 run by an association Les Chenes Verts.
France is currently under a state of emergency following a series of terrorist attacks by Islamist terrorists .
One of the most recent was in July when an 84-year-old Catholic priest was murdered during morning mass at the parish church in Saint Etienne-du-Rouvray, a suburb of Rouen.
The two attackers, who said they were from Islamic State, slit Father Jacques Hamel's throat before themselves being shot dead by police.
