The beheaded body of translator Kim Sun-il, 33, was found on the road between Baghdad and Falluja.

Mr Kim was working for a security company supplying the US military when he was abducted last week.

South Korea rejected demands from the al-Qaeda-linked kidnappers that it cancel plans to deploy 3,000 troops to northern Iraq.

President Roh Moo-hyun's National Security Council issued a statement condemning the killing.

"We are shocked and deeply saddened by this tragic incident, which occurred despite Seoul's efforts to bring him back safely," it said following an emergency meeting.

South Korean television showed Mr Kim's elderly parents and other relatives weeping and hugging each other in their home in the southern city of Busan after learning the news.

Earlier footage of Kim Sun-il pleading for his life galvanised public opinion. Peace campaigners took to the streets, while diplomats and politicians appealed to the hostage-takers.

On Tuesday evening, Arabic satellite channel al-Jazeera said it had received a new video tape saying that Mr Kim had been killed by a group identifying itself as Jamaat al-Tawhid and Jihad.

Last month, the same group - led by a top al-Qaeda member, Abu Musab al-Zarqawi - beheaded American hostage Nick Berg. It has also been responsible for a number of other attacks, including the killing of Iraqi Governing Council head Ezzedine Salim.

US President George W Bush condemned the killers, saying: "The free world cannot be intimidated by the brutal actions of these barbaric people."

In the latest footage aired on al-Jazeera, Mr Kim was shown kneeling on the ground in front of five masked men.

His shoulders were heaving, his mouth open. He wore a bright orange jumpsuit and matching blindfold.

The part of the tape broadcast did not show him dead, but the presenter said Mr Kim had been beheaded.

One of the masked kidnappers read a statement addressed to the Korean people, saying: "This is what your hands have committed. Your army has not come here for the sake of Iraqis, but for cursed America."

Mr Kim's body was found by US troops, the South Korean foreign ministry confirmed.

Korea's Baghdad embassy confirmed the body was Mr Kim by checking a picture of the remains that it received by e-mail from the US military.

Seoul has insisted it will go ahead with plans to deploy 3,000 troops to northern Iraq, to add to a force of 600 already in the country.

But all South Korean civilians except essential personnel were to be evacuated, the foreign ministry said. Only about 22 South Korean civilians are still thought to be in Iraq.

In a previously released two-minute tape - first aired on al-Jazeera on Sunday - Mr Kim was shown begging for his life.

He was seen screaming: "Korean soldiers, please get out of here. I don't want to die. My life is important."