"At the moment when a video probe was sent into the bathroom, the killer came out of the bathroom, firing with extreme violence," Interior Minister Claude Gueant said, adding that Merah was firing several guns at once.
"In the end, Mohamed Merah jumped from the window with his gun in his hand, continuing to fire. He was found dead on the ground," he told reporters at the scene. Two police commandos were wounded.
Special forces entered the five-storey building in a suburb of Toulouse after besieging Merah since early on Wednesday.
Gueant said earlier police hoped to capture Merah, who had confessed to police negotiators to killing three soldiers as well as three Jewish children and a rabbi at a school, alive.
President Nicolas Sarkozy, whose already slim chances of beating off a Socialist challenger in next month's presidential election may be affected by his handling of the crisis, has vowed justice will be done and urged people not to seek revenge.
Early on Thursday, the first opinion poll since the school shooting showed Sarkozy would narrowly beat Socialist Francois Hollande in the first-round vote. But Hollande was seen at eight percentage points ahead in the second round.
There had been a long silence overnight from Merah, who said he wanted to avenge the deaths of Palestinian children and French army involvement in Afghanistan.
"Despite renewed efforts all through the night to reestablish contact by voice and radio, there has been no contact, no showing from him," Gueant said.