Police killed the Chechen rebel leader Saturday acting on a tip from within his network, a possible blow to efforts to spread the increasingly Islam-inspired insurgency throughout southern Russia.

Abdul-Khalim Sadulayev was shot during a raid on a hideout in his Chechen hometown of Argun, nine miles east of Grozny. He had been planning a terror attack in Argun to coincide with the Group of Eight summit of leading industrialized nations in St. Petersburg in mid-July, the Moscow-backed Chechen premier said.

Wearing combat fatigues, Prime Minister Ramzan Kadyrov posed for TV cameras next to a half-naked bloodied body identified as the rebel leader's. He said a close associate of Sadulayev's tipped police to his whereabouts for the equivalent of $55.

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"He urgently needed to buy a dose of heroin, so he sold his leader for heroin," Kadyrov, flanked by his lieutenants, said with a grin.

The prime minister said his paramilitary police had wanted to capture Sadulayev but had to kill him when he resisted arrest. Russian television stations showed the basement of a house where the rebel leader was allegedly hiding, its wall riddled with bullets.

"The terrorists have been virtually beheaded. They have sustained a severe blow, and they are never going to recover from it," Kadyrov said. "We must decisively end international terrorism in the whole of the North Caucasus."

The mountainous Caucasus region encompasses southern Russia — including the breakaway Chechen republic — and the former Soviet republics of Georgia, Armenia, and Azerbaijan.

An intelligence agent and a police officer were killed in the operation, the Federal Security Service, the main KGB successor agency, said in a statement. One rebel also was killed and two rebels escaped, NTV news reported.

Top rebel aide Ibrahim Mezhidov confirmed Sadulayev was killed, according to the Kavkaz Center Web site sympathetic to the rebels.

Speaking to Ekho Moskvy radio, rebel envoy Akhmed Zakayev, who lives in London, denounced the killing as a "political murder." He said warlord Doku Umarov would now become secessionist president.

An Islamic scholar, Sadulayev took over after Russian forces killed rebel leader Aslan Maskhadov in March 2005. Maskhadov had called Sadulayev a co-organizer of one of the most high-profile Chechen rebel attacks: a 2004 raid on police and security installations in the neighboring republic of Ingushetia that killed some 90 people.

Russian prosecutors consider Sadulayev the top organizer of the 2001 kidnapping of Kenneth Gluck, of New York, who worked for Doctors Without Borders in southern Russia. Gluck was freed after 25 days.

Previously, Sadulayev had been an imam of his hometown mosque. He preached on local television when Chechnya enjoyed de-facto independence after the Russian troops' withdrawal following the botched 1994-96 Chechen campaign.

Though rooted in nationalist sentiment, Chechnya's separatist movement took on a growing Islamic cast after Russian forces launched a second Chechen invasion in 1999. In 2002, Sadulayev was named the chief judge of the Chechen rebels' court of Islamic law.

As rebel president, Sadulayev presided over insurgent efforts to reach beyond Chechen borders and encourage militant movements in nearby Caucasus regions.

Militant cells linked to Chechen rebels have spread quickly across the volatile Caucasus provinces, encouraged by the region's poverty and simmering public anger at police brutality and persecution of Muslims who worship outside officially sanctioned mosques.

"Sadulayev has cast himself as the leader of the so called 'Caucasus Front,' the man leading a new generation of young militants," Alexei Malashenko, and expert with the Carnegie Endowment's Moscow office, told The Associated Press.

He also was a compromise figure, accepted by different militant cells throughout the Caucasus, and as a result his death deals a serious blow to the Chechen rebel movement, said Alexander Ignatenko, head of the Moscow-based Institute for Religion and Politics.

"Heads of regional cells have sworn an oath of allegiance to him," Ignatenko told AP. "They might not accept another Chechen as their leader."'

Some analysts said that Sadulayev's death could set stage for a turf battle between warlords Umarov and Shamil Basayev.

A top rebel commander, Basayev has claimed responsibility for some of Russia's worst terror attacks, including the seizure of some 800 hostages in a Moscow theater in October 2002 and the September 2004 school hostage taking in Beslan that killed 331.

"Basayev is much more authoritative than Umarov," Malashenko said.

The Chechen prime minister — whose feared paramilitary forces are suspected of abducting civilians and other violence — vowed Saturday to track down both warlords.

Political commentator Yulia Latynina said the rebel leader's killing marked the beginning of Kadyrov's bid for regional presidency. "By liquidating a major rebel figure ... Kadyrov wanted to prove his loyalty to federal authorities," she said on Ekho Moskvy.

Kadyrov is the son of Chechnya's first pro-Moscow president, Akhmad Kadyrov, who was assassinated in a rebel bombing in 2004. He has moved up steadily within the region's Kremlin-backed government and is expected to become Chechen president when he reaches the mandated age of 30 in October.