Russia, which had accused Maskhadov of masterminding a series of deadly attacks on civilian targets, including last year's Beslan school siege, hailed his death as a major development.
Major General Ilya Shabalkin, spokesman for the regional headquarters for counter-terrorist operations in the North Caucasus region in southern Russia said Maskhadov was hiding in a bunker under one of the houses in the village of Tolstoy-Yurt
Russian news agency Interfax quoted first deputy president of Chechen government, Ramzan Kadyrov as saying federal troops had planned to capture Maskhadov alive, but he was shot accidentally by his bodyguard.
But Chechen rebels vowed their fight for Chechnya's independence would go on. A successor would be named within days, Maskhadov's London-based envoy Akhmed Zakayev said.