Roughly 400 soldiers in armored vehicles sealed off the town of Aba, where the kidnapped youngsters are believed to have been held since gunmen hijacked their bus on the way to school on Monday.
"They are everywhere and have taken over the streets. They have cordoned off the area. People are not allowed in or out of the town. Several shops, banks and schools remain shut," one resident, who did not wish to be named, told Reuters.
Kidnapping for ransom is relatively common in and around the Niger Delta, a deeply impoverished area despite being home to Africa's largest oil and gas industry.
However, the abduction of a large group of children, some of them as young as 3, has caused outrage in Nigeria as it prepares to celebrate its 50th anniversary of independence from Britain on Friday.
President Goodluck Jonathan, who faces an election early next year, condemned the kidnapping as "utterly callous and cruel" and said security forces would take "all necessary steps" to secure the children's release.
Initial reports suggested the kidnappers were seeking a ransom of 20 million naira ($150,000), although newspapers said on Thursday that demand had dropped to 350,000 naira ($2,600) , raising hopes of an end to the drama.
Three French oil workers were kidnapped from a drilling supply ship last week, and police in nearby Rivers state say a group of five women were kidnapped two weeks ago by a gang believed to be from Abia State.
There has been no word on the fate of either group, although in most instances in Nigeria hostages are released unharmed after ransoms are paid.
