Federal Security Service head Nikolai Patrushev said in a televised meeting with President Vladimir Putin that Basayev was killed in a "special operation" in Inhushetia, near Chechnya.
Basayev's death comes days before the G8 summit in St. Petersburg, Russia, during which Basayev allegedly was planning an attack in the southern part of the country. "They intended to use this terrorist act to put pressure on Russia's leadership at a time when the G8 summit was being held," said Patrushev.
The Chechen leader is responsible for several of Russia's worst terrorist attacks. In 2002, his forces seized a Moscow theater where dozens of hostages and militants died. He also claimed responsibility for the September 2004 hostage taking in Beslan, where 331 people -- half of them children -- were killed.
The outrage prompted the Russian government to offer a $10 million reward to anyone providing information leading to his death.
"This is deserved retribution against the bandits for our children in Beslan, for Budyonnovsk, for all the acts of terror they committed in Moscow and other regions of the Russian Federation," said Putin in his televised comments.
A pro-rebel Web site, however, refuted statements that Basayev was killed by special forces, saying instead that his death resulted from an accidental explosion.
"There was no special operation. Shamil and other brothers of ours became martyrs by the will of Allah," said Abu Umar, a member of the rebel parliament, in a statement on the Kavkaz-Center Web site frequently used by Basayev.
Russian news agencies reported that as many as 12 died in a blast so violent that it made it difficult to identify remains, although experts were able to identify Besayev from body parts.
"All his distinguishing features were found," said Ingush Deputy Prime Minister Bashir Aushev. Officials said he was identified by his short-cropped hair, thick beard, and a prosthetic leg, attached below his knee since he injured it in 2000.
Basayev has been a key commander in the Chechen resistance since 1994, after Russian forces invaded Chechnya, and ran for president after Russia withdrew in 1996.