The Taleban's top military commander in Afghanistan, Mullah Dadullah, has been killed in fighting in the south.
Previous reports of his death or capture had proved untrue
His body was shown to reporters in Kandahar, and Taleban sources confirmed the death, after initial denials.
Nato said Dadullah died in a clash with Afghan and Western forces in Helmand province.
Mullah Dadullah "will most certainly be replaced in time but the insurgency has received a serious blow" the Nato-led security assistance force (Isaf) said.
Isaf and Afghan troops have been engaged in a major operation in Helmand province since early March.
But the Taleban commander was killed in an operation by the separate US-led coalition supported by Isaf, news agency AFP said.
Mullah Dadullah's name has been linked with the beheading of suspected spies, controlling the guerrilla war in Helmand Province, dispatching suicide bombers and the kidnapping of Westerners, including an Italian journalist and two French aid workers, both of whom have since been released.
Key Taleban military leader
Brutal and extreme leader
Lost a leg fighting in Kabul in 1996
Thought to be in his 40s
Hero in eyes of Taleban rank and file
Mullah Dadullah recently told the BBC that he had hundreds of suicide bombers awaiting his orders to launch an offensive against foreign troops.
The BBC's Afghanistan correspondent, Alastair Leithead, says the commander has produced videos showing beheadings of foreign hostages.
Previous reports of his death or capture had proved untrue, but officials displayed the body to confirm the killing.
For many years Mullah Dadullah has been known to be one of the most brutal and extreme Taleban leaders.
In the last 12 months he has become perhaps the most significant military commander in Afghanistan, certainly in the south where the close quarters fighting has been most intense, our correspondent says.
But it is difficult to assess the impact of his death on the insurgency, our correspondent says, because the Taleban's command structures are loose and fighters often operate in small, self-contained units.
Residents of the city of Herat, in western Afghanistan told the BBC commander's death was significant.
One man, Rahib Mohtasadzadagh, said: "I think the murder of Mr Dadullah, the commander of the Taleban, has lots of effects on the Taleban troops.
"But I think another person will replace him, so in the future they will organise another person for that."
Faisal Karimi told the BBC that the killing would have a "very positive effect on security in the country".
"He was the ruler of the Taleban, and it will affect the Taleban influence in the south, for sure. The Taleban will face defeat, and their attacks in the south will decrease."
Mullah Dadullah was a member of the Taleban's 10-man leadership council before the US-led invasion in 2001.
He has been called "Afghanistan's top Taleban commander" by Nato officials, and was high on the US list of most-wanted people in the country.
Mullah Dadullah lost one of his legs fighting in Kabul in 1996 and has since used an artificial limb.
He had the reputation of a fearless man.
Despite his disability, he fought and led major battles for the Taleban against the rival Northern Alliance forces during the 1990s.
He was one of the first Taleban commanders to organise attacks against US-led coalition forces after the 2001 invasion of Afghanistan.
And he was the first Taleban commander to give interviews to print and electronic media after the fall of the regime.
Unlike other Taleban leaders who never allowed themselves to be photographed for religious and security reasons, Mullah Dadullah did just the opposite, correspondents say.