Zarqawi was killed in a raid by two F-16 warplanes which dropped two 500-pound bombs on a safe house north of Baghdad where he was holding a meeting with fellow militants, ending years of hunting for Iraq's most wanted -- and elusive -- fugitive.

Seven other top insurgents were also killed in the Wednesday evening raid, a joint US-Jordanian operation, which the US military said was the fruit of a painstaking tracking of Zarqawi since December 2004.

US President George W. Bush and other leaders welcomed the killing of the Jordanian-born insurgent who carried a 25 million dollar bounty on his head, but also cautioned Al-Qaeda remains a dangerous force in Iraq and worldwide.

Zarqawi, blamed for much of the daily bloodshed that has bedevilled Iraq in its transition after the toppling of Saddam Hussein in 2003 "has been eliminated," Prime Minister Nuri al-Maliki told a news conference.

"What happened ... is the result of collaboration from people who facilitated the operation conducted by Iraqi police and multinational forces," Maliki told reporters to applause and cheers.

"This is a message to those who choose the path of violence to change their direction before it is too late. I thank our forces, our police and the multinational forces for what they are doing in pursuing the terrorists."

"Anyone who looks to emulate Zarqawi, we will find him and kill, this is an open war between unified Iraqi people and sectarianism," Maliki added.

Bush hailed Zarqawi's death as a "severe blow to Al-Qaeda" and a victory in the war on terror, adding that it presented "an opportunity for Iraq's new government to turn the tide on this struggle."

But Bush cautioned: "The difficult and necessary mission in Iraq continues. We can expect the terrorists and insurgents to carry on without him. We can expect the sectarian violence to continue."

British Prime Minister Tony Blair echoed his comments, welcoming the death as a blow to Al-Qaeda everywhere but also striking a note of caution, saying that the violence would continue.

"We should have no illusions. We know they will continue to kill, we know there are many, many obstacles to overcome," Blair said. "But they also know that our determination to defeat them is total."

Zarqawi, a shadowy figure appointed the leader of Al-Qaeda in Iraq by Osama bin Laden in 2004, was notorious for brutality which extended to personally beheading two British and American hostages in Internet videos, according to voice analysis by the US authorities.

General George W. Casey Jr, head of US-led forces in Iraq said Zarqawi and one of his key lieutenants, identified as spiritual advisor Sheikh Abdel Rahman, were killed at 6:15 pm (1415 GMT) Wednesday in an air strike on the isolated safe house.

He said Zarqawi's death outside Baquba, 60 kilometres (36 miles) north of the capital, "is a significant blow to Al-Qaeda and another step toward defeating terrorism in Iraq.

"Tips and intelligence from Iraqi senior leaders from his network led forces to al-Zarqawi and some of his associates, who were conducting a meeting approximately eight kilometers (five miles) north of Baquba, when the air strike was launched.

"Iraqi police were first on the scene after the air strike, and elements of Multinational Division North, arrived shortly thereafter. Coalition Forces were able to identify al-Zarqawi by fingerprint verification, facial recognition and known scars."

Maliki said that seven other leading lieutenants of Zarqawi, including two women who were working as spies for him, were killed in the air strike. Sources close to Zarqawi's family said one of his three wives was among the dead.

The military said that Sheikh Abdel Rahman, the so-called spiritual advisor to the Al-Qaeda leader, had been tracked for several days and led the US-led forces to the Baquba safe house.

An Al-Qaeda statement on an Islamist website confirmed the death. "We announce the martyr death of our sheikh, fighter Abu Musab al-Zarqawi," said a statement, whose authenticity could not be verified.

His death "would only reinforce our determination to pursue 'jihad' so that the word of Allah gains the upper hand," the statement said.

The group promised Al-Qaeda supremo bin Laden that "his soldiers in Al-Qaeda in Iraq will continue on the path forged by our Sheikh Abu Musab."

US military spokesman Major General Bill Caldwell showed photographs of the slain militant's face -- eyes closed and with a thin beard -- to reporters at a news conference.

He predicted that Zarqawi would be succeeded by an Egyptian-born lieutenant known as Abu al-Masri, whose movements have been monitored for some time and is believed to have first come to Iraq in 2002.

A senior Jordanian official revealed that the kingdom, a top US ally in the Middle East as well as Zarqawi's birthplace, had played a key role in the operation.

"Zarqawi was killed ... in a joint operation involving the Jordanian intelligence, the US intelligence and American special operations forces. It was a land operation with air cover."

And in another step aimed at returning security to the insurgency-wracked country, parliament approved Maliki's long-awaited appointments to the defence and interior ministries.

Jawad Polani was named as interior minister, Abdel Qader al-Obeidi as defense minister and Shirwan al-Waili to head national security.

On the ground, Sunni insurgent violence showed no let-up with at least 35 people dead in four separate bombings of markets in Shiite neighbourhoods of the capital.

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