South Korea's president has expressed sorrow over the beheading of a South Korean hostage in Iraq but insisted his country would still send more troops.
Mr Kim's parents were overcome by grief at the news
Roh Moo-hyun said Seoul would deal resolutely with terrorism.
The UN has also condemned the killing of Kim Sun-il, calling it a "heartless crime" which no cause could justify.
Kim's militant Islamic captors had demanded that South Korea pull its several hundred troops out of Iraq, and cancel plans to deploy 3,000 more.
They had threatened to execute Mr Kim if their demands were not met.
The beheaded body of the 33-year-old translator was found on the road between Baghdad and Falluja on Tuesday.
Arabic satellite channel al-Jazeera said it had received a videotape saying that Kim had been killed by a group identifying itself as Jamaat al-Tawhid and Jihad.
Last month, the same group - led by a top al-Qaeda member, Abu Musab al-Zarqawi - beheaded American hostage Nick Berg. It has also been responsible for a number of other attacks, including the killing of Iraqi Governing Council head Ezzedine Salim.
Following the news of Mr Kim's killing, the government held an emergency meeting of the National Security Council overnight, at which it reaffirmed its plan to send 3,000 troops to Iraq from August, to join more than 600 military medics and engineers already there.
The new troops are due to help in reconstruction, and are to be based near the Kurdish-controlled town of Irbil, which has been largely peaceful.
However, all South Korean civilians except essential personnel will now be evacuated, the foreign ministry said.
The BBC's Charles Scanlon, in Seoul, says the killing is a shock for a country that had dared to hope the hostage's life would be spared.
South Korean television showed Mr Kim's parents and other relatives weeping and hugging each other in their home in the southern city of Busan after learning the news.
"My poor son was killed by the government," his 63-year-old mother, Shin Young-ja, said.
President Roh said he felt "heartbroken" at the beheading, which he condemned as a "crime against humanity".
"We should never tolerate terror as a means to an end," he said.
A group of about 50 South Korean legislators tabled a motion in the National Assembly calling for the despatch of troops to be suspended.
And peace activists say they will bring thousands onto the streets for candlelight vigils against the deployment.
Mr Kim had been working for a security company supplying the US military, when he was abducted last week.
In the footage aired on al-Jazeera, Mr Kim was shown kneeling on the ground and blindfolded in front of five masked men.
The part of the tape broadcast did not show him dead, but the presenter said Mr Kim had been beheaded with a knife.
An earlier tape showed Mr Kim pleading for his life
One of the masked kidnappers read a statement addressed to the Korean people, saying: "This is what your hands have committed. Your army has not come here for the sake of Iraqis, but for cursed America."
US President George W Bush condemned the killers, saying: "The free world cannot be intimidated by the brutal actions of these barbaric people."
In a previously released two-minute tape - first aired on al-Jazeera on Sunday - Mr Kim was shown begging for his life.