The interior ministry in Iraq says it has received intelligence that the head of al-Qaeda in Iraq has been killed in an "internal battle" between militants.
Al-Masri is believed to have formed al-Qaeda's first cell in Baghdad
Abu Ayyub al-Masri has led the group since June 2006, when Abu Musab al-Zarqawi was killed in an air strike.
One official said he was "100% sure" Masri was dead, but another urged caution as they do not have the body.
An Iraqi insurgent umbrella group denied Masri had been killed, in a statement posted on the internet.
The self-styled Islamic State in Iraq said Masri, also known as Abu Hamza al-Muhajir, was alive and safe.
"The Islamic State of Iraq reassures the Ummah [Muslim nation] on the safety of Sheikh Abu Hamza al-Muhajir, may God protect him, and that he is still fighting the enemies of God," the group said in a statement on a website commonly used by insurgents.
The Islamic State in Iraq, formed in 2006 by a number of Sunni militant groups including al-Qaeda in Iraq, said it had published the denial "to reassure the hearts of Muslims".
Masri was "ambushed by rivals" on Tuesday in northern Baghdad, an interior ministry official said on Iraqi television.
"There were clashes within the groups of al-Qaeda. He was liquidated by them. Our forces had nothing to do with it," said interior ministry spokesman Brig Gen Abdel Karim Khalaf.
He said interior ministry sources had seen the killing.
But Iraqi government spokesman Ali al-Dabbagh cautioned: "This intelligence still has to be checked by giving the body to people who can identify him.
"When we get the body, its DNA must be verified, but the body is still not in the hands of Iraqi forces. There are now attempts by the Iraqi forces to get the body."
The US military says it has been unable to verify the claim.
"I hope it's true, we're checking, but we're going to be doubly sure before we can confirm anything," said Lt Col Chris Garver.
He added that several previous reports of Masri's death had been unfounded. The United States has a $5m bounty on his head.
Masri is believed to have trained in Afghanistan and formed al-Qaeda's first cell in Baghdad.
The group is blamed for or has claimed some of the bloodiest insurgent attacks in Iraq since 2003.
The BBC's defence correspondent Rob Watson says if the reports are confirmed, this would be a highly significant development in terms of the manner of Masri's death.
US officials have long talked of friction between al-Qaeda and other Sunni insurgent groups. The reported killing would suggest there are real tensions for US and Iraqi officials to exploit, our correspondent says.
Nevertheless, even if Masri is dead, it would be premature to expect a sudden drop in violence.
Al-Qaeda in Iraq has become far more decentralised and therefore less dependent on the leadership of any one individual.
In other developments:
- At least 14 people were killed in two separate attacks on buses carrying passengers on a main road south of the capital, Baghdad
- Mortar rounds hit the US-controlled Green Zone, with one striking within 100m (328 feet) of the Iraqi prime minister's offices, AP news agency quoted a government official as saying