The prisoner was armed with a bradawl, which he held to the throat of a warden who had worked at the jail in Moulins-Yzeure for less than a year, trade unionist James Vergnaud told the AFP wire service.
Having been recently transferred from nearby Roanne because authories believed he was plotting an escape attempt, he was demanding to be sent to another prison.
The Moulins-Yzeure prison's mamangement refused to comment on the situation.
A negotiator and special security teams have been dispatched to the scene, another union source said.
French police on Friday detained the brother of a prisoner who escaped his guards while being transferred to the prison at Sequedin, the jail from which gangster Redoine Faïd escaped earlier this year.
The man had told the Voix du Nord newspaper that he had gone for a walk in Lille city centre with his brother, who was "on holiday" and would return to his when summer is over.