Basayev is believed to have led many of the major Chechen attacks on Russian targets in the past decade.
Russia's most wanted man, Chechen warlord Shamil Basayev, has been killed in an operation by special forces, the state security chief told President Vladimir Putin on Monday.
FSB chief Nikolai Patrushev said Basayev, who claimed responsibility for the 2004 Beslan school attack in which 331 people, half of them children, were killed, was planning an attack to coincide with Russia hosting the G8 summit of world leaders this weekend.
CNN's Matthew Chance said the killing was a massive victory for the security services and a huge blow for the rebel leadership.
Basayev, together with other Chechen fighters, was killed in Ingushetia, a region neighboring Chechnya, where rebels are battling for independence.
In a televised meeting with Patrushev, Putin described Basayev's death as "deserved retribution" for Beslan and other attacks.
"This is deserved retribution against the bandits for our children in Beslan, in Budennovsk, for all these acts of terror they committed in Moscow and other Russian regions, including Ingushetia and Chechnya," Putin said, according to Reuters.
A statement on website www.kavkazcenter.com said the Chechen rebel leadership was not making any comment yet, the news agency said.
The U.N. Security Council put Basayev on its official terrorist list last year after Washington classified him as a threat to the United States.
The FSB had stepped up the pressure on the country's most wanted man by announcing a $10 million reward for information leading to the "neutralization" of him and separatist former Chechen president Aslan Maskhadov said in 2004.
Basayev, who was born in Chechyna in 1965, came to prominence in 1995 during the first Chechen war when as a field commander he led a hostage-taking raid at Budennovsk, Russia.
In the presidential election of January 1997 Maskhadov won a landslide over the more radical Basayev, swearing "to reinforce the independence of the Chechen state."
Basayev was appointed Chechen prime minister but he resigned after serving one six-month term.
Maskhadov later signed an agreement with then Russian president Boris Yeltsin promising an end to 400 years of conflict between Moscow and the region.
Russia said it wanted to rebuild relations with Chechnya but still refused to recognize Chechnya's claim of independence.
Maskhadov worked with Basayev until 1998, when Basayev established a network of military officers which soon devolved into rival warlords.
Chechen rebel forces crossed into Dagestan in 1999 and Moscow held Chechens responsible for a wave of bomb attacks across Russia.
Russia sent troops back into the republic, described Maskhadov's government as unlawful, and tried to build support for a parliament made up of Chechens in exile.
During fierce fighting, Maskhadov's government was removed from power and a pro-Moscow administration was set up.
During the rebel pullout from Grozny in January 2000 Basayev lost a foot after stepping on a landmine but he and other rebel fighters eluded Russian capture by hiding in forests and mountains.
He was helped by Islamic groups including the Taliban in Afghanistan and was accused by Russia of organizing suicide bombings of Russian apartment blocks in September 1999.
Basayev said on a rebel Web site that he was responsible for the Moscow theater siege of October 2002 in which 50 Chechen rebels held about 800 people hostage. Russian forces later stormed the building using gas, killing most of the rebels and more than 100 hostages. (Full story)
He defended the operation but asked Maskhadov, whose senior envoy condemned the siege, for forgiveness for not informing him of it.
Basayev tendered his resignation from all posts in Maskadov's rebel organization but continued to be involved in the reconnaissance and sabotage battalion.
In May 2004 Basayev said he was behind the killing of Chechnya's pro-Moscow leader and threatened to kill more officials, including the Russian prime minister, Akhmad Kadyrov.
That explosion killed six people and wounded nearly 60, including the top Russian military commander in Chechnya, who lost his leg.
Moderate rebels distanced themselves from the attack. But Basayev said he had ordered the killing after a ruling by an Islamic court.
He called it a "small but important victory" and said that other such operations against Russia's "collaborators" in Chechnya were in the making.
"Through the kindness of Allah, the Chechen people on May 9 celebrated a double holiday -- that of the victory over fascism and a small but very important victory over Russia," he said in a statement on rebel Web site www.kavkazcenter.com.