The BBC's Kurt Barling: Authorities may have botched a rescue attempt

The heads of Britons Darren Hickey, 26, Peter Kennedy, 46 and Rudolph Petschi, 42, were discovered in a sack alongside that of New Zealander Stanley Shaw, 58, on a deserted highway west of the Chechen capital, Grozny.

While kidnapping is commonplace in the lawless republic, these were the first foreign hostages killed.

UN Secretary-General Kofi Annan said he was "shocked". Russian President Boris Yeltsin was "deeply disturbed" by the beheadings, a Kremlin spokesman said.

The UK Foreign Secretary, Robin Cook, described the murders as "repugnant" and pledged to discover exactly what led to the men's deaths.

British diplomats are due to meet Russian officials to gather information.

Bungled rescue operation

It is thought the hostages may have been murdered in response to a failed rescue attempt.

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Chechen President Aslan Maskhadov said his government's anti-terrorist squad had been closing in on the gang which kidnapped the telephone engineers.

He said this may have panicked the hostage-takers - who had seized the engineers from their home in a gun battle in Grozny, in October.

The BBC's Tom de Waal, said: "I have spoken to ITAR-Tass journalists in Grozny who say there was some kind of failed operation which allowed the kidnappers to escape.

"It seems as a result of this bungled operation the hostages were murdered at some distance from the original hide-out.

"The grotesque manner of their death would indicate a show of defiance to the authorities from the kidnappers."

There are conflicting reports about arrests of suspects. The Chechen national security chief told a Moscow radio station that a man had been detained. But this was denied by the deputy prime minister.

Negotiations with hostage-takers

It emerged that Granger Telecom, the Surrey-based company which the men worked for, had entered into negotiations with the kidnappers in an effort to secure the men's release.

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Company Chief Executive Ray Verth said: "We had opened a dialogue with the kidnappers and received confirmation that the hostages were alive as recently as last week."

A Foreign Office spokesman said Granger Telecom had been warned to withdraw from Chechnya, but had ignored the advice.

The Chechen president said he would send an official letter of condolence for the murders to the UK Foreign Office.

A rescue operation appears to have gone wrong

"I am ready to answer for what happened before our whole people and the entire world," Mr Maskhadov was quoted as saying.

He said the four men were abducted by "bandits who are financed by foreign special services".

BBC Correspondent Paul Anderson in Moscow says this was probably a veiled reference to Russian nationalist forces seeking to destabilise the breakaway territory.

The men were in Chechnya to install a communications infrastructure for Chechen Telecom and the Chechnya Government.

There are hundreds of kidnappings in Chechnya every year.

At the time the four men began their work in the region, two British aid workers, Jon James and Camilla Carr, had been in captivity in Chechnya for several months. They have since been released.

Ray Verth reads a statement from Granger Telecom: "Devastated to hear the news"

Chechnya unilaterally declared independence from Russia in 1991. Russian troops failed to recapture the territory despite intense fighting with the rebels in 1994.

A 1996 cease-fire left Moscow with no effective authority over Chechnya, though it has not acknowledged the territory's independence.