French minister says the "attempted attack" justifies the state of emergency, which he will now seek to extend until November.
The 31-year-old suspect had been monitored since 2015 for membership of a 'radical Islamist movement'.
Gerard Collomb, France's interior minister, told reporters near the scene the man intended to attack the security forces and that the car was carrying explosives.
Police sources told Agence France-Presse that a Kalashnikov rifle, handguns and gas bottles were found in the suspect's white Renault Megane.
The car is described as having gone up in flames after the attempted ramming.
Police have asked the public to avoid the area while their security operation is ongoing.
Two metro stations on the Champs-Elysees, one of the city's most popular neighbourhoods for tourists, have been closed.
Associated Press cited an eyewitness account by a journalist for French newspaper Liberation, Eric Favereau, who was driving a scooter behind a gendarmes convoy.
Mr Favereau said he saw a car blocking the convoy's path and then an implosion in the vehicle.
The gendarmes broke open the windows and pulled the occupant from inside, while others attempted to extinguish the flames.
Police say the situation is now under control, and a bomb disposal unit is on the scene "to ensure the vehicle poses no further danger," Mr Brandet said.
The Paris prosecutor's counter-terrorism unit has opened an investigation into the incident.
Mr Collomb said that the attempted attack shows the threat France is facing is still very high and justifies its ongoing state of emergency, which was first introduced following the November 2015 attacks in Paris.
The interior minister said he would be introducing a bill on Wednesday at a cabinet meeting to extend the state of emergency from 15 July, when it is set to expire, until 1 November.
Mr Collomb said a new security law was "needed" because of the attacks, and that the legislation would "maintain a high security level" beyond the state of emergency.