UPDATE 12.15PM

Islamic State claimed responsibility for the Berlin Christmas market attack which killed 12 people and injured around 50.

The group’s Amaq news agency claimed that “the person who carried out the truck run over attack in Berlin is a soldier of the Islamic State and carried out the attack in response to calls for targeting citizens of the Crusader coalition”.

It has also emerged that the passenger in the cab of the truck was indeed a Polish citizen as claimed yesterday, and that the man had been found in the cab by police, shot dead.

Meanwhile, an Israeli citizen, until now not counted among the victims, is also understood to be part of the toll.

EARLIER

The man suspected of driving a truck into a crowd of Christmas shoppers in Berlin is still at large after police admitted they arrested the wrong man.

Police detained a 23-year-old asylum seeker of Pakistani origin, named as Naved B, on Tuesday (AEST) after a 7-tonne truck drove through a Christmas market in the heart of Berlin, killing 12 people.

But he has now been released from custody.

“The investigation up to now did not yield any urgent suspicion against the accused,” the Chief Federal Prosecutor’s Office said in a statement on Tuesday.

It added it had been impossible to track the truck driver by eye-witnesses following the attack and that the investigation so far had not been able to prove that the suspect was in the truck’s cab at the time of the attack.

Earlier an unnamed police source was more blunt.

“We have the wrong man,” the source told Die Welt newspaper. “This means the situation is different. The real culprit is still armed and can commit further atrocities.”

Police chief Holger Muench confirmed fears that the man is probably still on the loose.

“We are, of course, highly alarmed and we are investigating – of course – in all directions,” Muench said at a press conference in response to a journalist’s question on Tuesday.

German authorities believe that the truck was “deliberately” driven into the crowd of Christmas shoppers at Breitscheidplatz, Berlin, killing at least 12 and injuring 48, in what German Chancellor Angela Merkel said the world must “assume was a terror attack”.

“There is much we still do not know with sufficient certainty but we must, as things stand now, assume it was a terrorist attack,” Ms Merkel said.

“I know it would be especially hard for us all to bear if it were confirmed that [the] person who committed this act was someone who sought protection and asylum.

“This would be particularly sickening for the many, many Germans who work to help refugees every day and for the many people who really need our help and are making an effort to integrate in our country.”

The victims had been working and shopping at stalls selling mulled wine and sausages at the foot of the Kaiser Wilhelm memorial church on Tuesday morning (AEDT) when the attack occurred.

On Tuesday evening (AEDT, Tuesday morning local time), German police raided the refugee shelter where Naved B was suspected to be living.

It is home to 2000 refugees and police seized a mobile phone and laptop in the raid, but made no arrests.

A man found shot dead in the truck is believed to have been the original driver of the vehicle before it was allegedly hijacked.  The gun has not been recovered.

The dead truck driver was a Polish citizen and was not in control of the vehicle when it crashed into the victims, police said.

Lukasz Urban had arrived in the capital hours earlier and spoken to his wife about 3pm, according to his cousin Ariel Zurawski, but failed to answer when she called him an hour later.

GPS tracking on the truck shows movement at 3.45pm, with a Polish broadcaster quoting Mr Zurawski – who was also the trucking company boss – as saying he knew something was wrong then.

He said the truck moved forward and back as if someone was learning to drive it.

Zurawski said he had identified his cousin from police photographs that showed him with a swollen, bloodied face.

“The police told me he had been not only stabbed but also shot,” Mr Zurawski said.

The incident evoked memories of an attack in Nice, France in July when a Tunisian-born man used a truck to mow down people watching fireworks on Bastille Day, killing 86.

Merkel condemns ‘unspeakable act’

That the suspect could be a refugee is a hugely controversial topic in Germany, where Chancellor Merkel’s popularity ratings are declining significantly since the influx of refugees into the nation.

More than one million refugees, mostly from the Middle East and Africa, have arrived in Germany in the past two years.

This has led to a boost in popularity for anti-immigrant and right-wing parties like Alternative for Germany (AfD).

Senior AfD member Marcus Pretzell on Twitter blamed Ms Merkel for the attack.

Ms Merkel said that many of the injured were fighting for their lives and that the perpetrator would be “severely punished”.

“We do not want to allow ourselves to be paralysed by terror. Although it might be difficult, we will find the strength to continue living life as we want to live it in Germany – in freedom, openness and together.”

She and other senior German officials have laid white roses at the site of the attack near the Kaiser Wilhelm Memorial Church, speaking with police officers at the market and signing a book of condolences.

The markets remain shut.

Far-right leaders from around the world seized on the opportunity to politicise the incident, with former Britain’s Brexit architect Nigel Farage placing the blame squarely at Ms Merkel.

Terrible news from Berlin but no surprise. Events like these will be the Merkel legacy.

— Nigel Farage (@Nigel_Farage) December 20, 2016

Australian witness describes terrifying scene

Australian woman Trisha O’Neill witness the carnage first-hand.

“I could hear screaming and then we all froze. Then suddenly people started to move and lift all the wreckage off people, trying to help whoever was there,” she said.

“Eventually we had to and there was blood and bodies everywhere.

“People, including children and older people, weren’t moving – people were crying and I just burst into tears.”

Attack another blow to tourism

The truck attack is the latest blow for Europe’s tourism industry, hitting a city that had been attracting more and more visitors in recent years.

“Christmas markets are a big attraction for German cities, including Berlin, and this attack will no doubt impact the amount of visitors for the remainder of this year,” Wouter Geerts, travel analyst at Euromonitor, said.

The attacks in Nice and Paris last November as well as Brussels in March have already dampened demand for travel to Europe, especially from the United States, China and Japan.

Christmas markets in Berlin stayed shut on Tuesday as the city mourned the victims, while security measures were stepped up at similar events elsewhere in Germany and abroad.

Germany’s interior ministry said other Christmas markets and large gatherings would not be called off, and appropriate steps to increase security should be decided at each location.  Concrete barriers have been placed around some other markets.

Migrants worried

As the city digests the attack, refugees in Berlin pleaded with their host nation to avoid placing migrants under a blanket of suspicion after police commandos raided their shelter, which had been home to a man arrested over the attack.

“We are of course worried,” said Ibrahim Sufi, a 26-year-old Syrian living in Hangar 7 at the former Tempelhof airport now being used to house migrants.

“We are worried about how the German public will view us after this terrorist attack,” added Sufi. “My message to the Germans is: ‘Don’t suspect everybody, don’t generalise’.”

– with AAP and ABC