Alton Nolen, 30, spoke in Arabic while he decapitated his victim with a "large kitchen knife," Cleveland County District Attorney Greg Mashburn said, adding that the suspect appeared to hate white people.
Prosecutors have yet to decide whether to seek the death penalty, Mashburn said, while adding that it was "highly likely." The FBI will decide separately whether to bring terrorism charges, he said.
"Obviously there was some sort of infatuation with beheading," he told reporters. "Other than that it seemed to be an isolated incident."
The attack occurred last Thursday at a food processing plant in the city of Moore, Oklahoma, where Nolen had just been suspended from his job.
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He went home and retrieved a kitchen knife, then returned to the front of the company building, where he killed Colleen Hufford, a co-worker.
"Upon entering the building he came across Mrs Hufford and attacked her from behind, ultimately killing her and beheading her," said the prosecutor.
He was eventually brought down by a company boss, Mark Vaughn, a reserve deputy sheriff who shot Nolen.
Asked what triggered the incident, Mashburn said Nolen had been suspended earlier in the day as a result of a dispute over race.
"From my understanding there was an altercation about him not liking white people," he said. Earlier reports had said he had tried to convert co-workers to Islam.
Nolen, who was injured, remains in hospital but will be arraigned on the first degree murder charge as soon as he is able to leave and be taken into normal custody.