Marseille Prosecutor Jacques Dallest said Matthias Kaspar Schepp and his daughters boarded a ferry for Propriano, in Corsica, on Jan. 31, but authorities could not confirm that the twins ever left the boat.
But police in southern Italy, meanwhile, interviewed a coffee shop owner who reported seeing a man and his daughters who fit the description of blonde Alessia and Livia sometime last week. The bar is located in the city of Cerignola, where Schepp was found dead Feb. 3.
If confirmed, the report would place the twins in Italy for the first time since they were reported missing from their home in Lausanne, Switzerland on Jan. 30. Police, who searched the bar and took a closed-circuit video, haven't commented on the claim.
"Either the father threw the girls overboard during the trip from Marseille to Propriano, or he got off with them and something happened on the way back and he was able to get rid of them before killing himself in Italy," French prosecutor Dallest said.
"We fear the worst," the prosecutor added.
One witness on the Scandola ferry reported seeing the twins, one wearing glasses, the other a large t-shirt, the prosecutor said.
Another witness said she heard crying from Schepp's neighboring cabin and "a bit later, she saw the little girls," Dallest said. She said she saw them again later on the ferry's playground.
It's unclear whether the girls disembarked in Corsica. One passenger aboard the ferry told police he saw a man and two girls get off the boat in Corsica, but he "was not able to identify the little girls," the prosecutor said.
Police have said previously the father was seen in Corsica and later Naples, in southern Italy, before his body was found Feb. 3 in Cerignola, about 110 miles (175 kilometers) east of Naples on the other side of the Italian peninsula.
Police say he threw himself under a train in Cerignola.
The Marseille prosecutor said Schepp withdrew money from an ATM in southern France on Feb. 2. Swiss police say he later mailed euro4,400 ($6,000) from Bari, Italy to his estranged wife in Switzerland. The mother and father were both employees of Philip Morris International in Lausanne.
Oriana Scelsi, owner of the "Fiore" bar on the outskirts of Cerignola, Italy, said Wednesday she saw a man who fit Schepp's description toting two girls. She said she was sure that they were the girls and that their father had come into the bar last week asking for a bathroom for one of them.
"They stopped at the door, the father asked for a toilet because they were running late," Scelsi told The Associated Press. "He said, 'Come on, come on Lia, or else we'll be late for the train.' "
She said she heard "Lia" but that she might have misheard him saying "Livia." She said the man had a strange accent and asked for a "toilet" rather than the Italian 'bagno' for bathroom.
She said the girls appeared older than their newspaper photos but that she was certain it was the twins.
She was interviewed by police. The ANSA news agency reported that an initial viewing of the cafe video didn't show any trace of the girls, however.
Calls to Cerignola police weren't immediately returned Wednesday.
Nicole Winfield in Rome contributed to this report.