"It's a video montage of the various killings set to music and readings from the Koran," the source said, adding that the footage had been sent to the Paris office of the pan-Arabic satellite network Al-Jazeera.
The source said the material was "sufficiently explicit".
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Mohamed Merah, a 23-year-old Frenchman of Algerian descent who was killed last week in a police siege following three shooting sprees that left seven dead, had previously boasted of filming his killings.
The police source said investigators had been passed a USB memory stick that had been sent to the Paris office of Al-Jazeera, a network financed by the Qatari royal family and watched throughout the Arab world.
Detectives visited the station Monday to pick up the evidence. The source said Al-Jazeera had not broadcast the footage but had probably retained copies.
Merah was killed on Thursday after a 32-hour siege by police from the elite RAID special intervention squad on his apartment in Toulouse.
Before the fatal shootout, Merah had boasted to police negotiators that he was behind three previous shootings this month in which three unarmed French soldiers and four Jews were killed.
He also declared that he had uploaded footage of the attacks to the Internet, although no trace of the video had been found.
Witnesses and the anti-terrorist prosecutor assigned to the case have said that the shooter appeared to be wearing a video camera of the Go-Pro type of sports cameras harnessed to his chest during the shootings.
As police surrounded Merah's Toulouse apartment last week, the gunman claimed responsibility for all three attacks.
In the first two incidents he shot dead three soldiers in attacks in Toulouse and nearby Montauban.
Then last week he opened fire at a Jewish school in Toulouse, killing a 30-year-old teacher, his sons aged five and four, and a seven-year-old girl.
President Nicolas Sarkozy, in mid-campaign for re-election, said Monday French security services would launch a hunt for Islamic extremists following the killing spree.
"Are there other Merahs? All the security, intelligence and police services in democratic countries are on the lookout," Sarkozy told France Info radio.
He said the interior and justice ministries have been ordered to engage in a systematic evaluation of potential threats.
On Sunday authorities charged the gunman's brother, 29-year-old Abdelkader Merah, with complicity in the attacks but he denied any involvement.
