An American electrician taken hostage in Iraq on Tuesday has been killed, according to an internet statement posted by his alleged captors.

The news came as tense negotiations continued to secure the release of an elderly British hostage, Norman Kember.

In statement which could not be verified, the Islamic Army in Iraq said it had killed "the American security consultant for the Housing Ministry", after the US failed to respond to its demand of the release of Iraqi prisoners.

"The war criminal Bush continues his arrogance, giving no value to people’s lives unless they serve his criminal, aggressive ways. Since his reply was irresponsible, he bears the consequences of his stance," the group said.

Two days ago, the group released a video showing Ronald Schulz, a 40-year-old industrial electrician from Alaska, and said it would kill him unless the American government freed Iraqi prisoners within 48 hours.

Today's statement, posted on an internet forum used by Islamic militants, did not name the hostage and provided no evidence he had been killed, but said pictures of the murder would be released later, according to the Associated Press.

Earlier today, a third video of Mr Kember, the 74-year-old British peace campaigner seized by a separate Islamist group ten days ago, was broadcast, showing him blindfolded, chained and wearing an orange jumpsuit, along with three other Western hostages.

The video was considered an ominous development - other hostages who have been shown wearing the symbolic, Guantanamo-style overalls include Ken Bigley, the British engineer who was beheaded by his captors last year.

Nonetheless, a British Muslim working for the release of Mr Kember expressed his hope today that messages were reaching his captors.

Anas Altikriti, a leader of the Muslim Association of Britain, has met Jordan-based Iraqis from the Sunni Triangle with the aim of securing the release of Mr Kember, and he said the kidnappers' decision to extend a deadline for the execution of the four hostages by 48 hours was a source of "mighty relief".

"If it is a group that is adamant to kill the hostages, they do it without extending the deadline. The very few times that the deadline has been extended, the outcome was usually satisfactory," he said.

Jack Straw, the Foreign Secretary, today repeated that the kidnappers' demands - which include the release of all detainees in Iraq and the withdrawal of British troops - are impossible to meet. But in a brief statement outside No 10 Downing Street he said that he was keen to hear directly from the hostage-takers.

Although Mr Straw has said he can not meet the demands of the kidnappers, the Foreign Office has been co-ordinating a series of operations on the ground.

British diplomats are reported to have used more intermediaries than they did during the failed attempt to save Mr Bigley and Margaret Hassan, a charity worker kidnapped in Baghdad.

The four men were abducted moments after leaving a meeting with the Association at Saddam Hussein's infamous Mother of All Battles Mosque in Baghdad, where they had been discussing human rights abuses by coalition troops.

Their kidnap is believed to have angered Sunni clerics who are now helping behind the scenes to orchestrate their safe release.

Yesterday, in an unprecedented move, Abu Qatada - once labelled the most dangerous man in Britain - recorded a television appeal for Mr Kember's release from inside his prison cell. Officials admitted that it was a unique broadcast but said that they were prepared to take the desperate measures.

Dressed in a flowing white robe and looking notably thinner than at his arrest in August, Abu Qatada, speaking in Arabic, told the kidnappers: "I am your brother Abu Qatada, Omar bin Mahmud Abu Omar, who is imprisoned in Britain.

"I urge my brothers, the Brigades of the Swords of Right in Iraq, to release the hostages in line with the principle of mercy of our religion. Our prophet said mercy should be shown unless there is a reason in Sharia [Islamic law] that prevents it."

The appeal was filmed on Tuesday and Abu Qatada's lawyers handed the tape yesterday to the Arabic satellite channels al-Jazeera and al-Arabiya. Experts doubted that the imprisoned militant's words would be enough to sway the resolve of the kidnappers.

Mr Kember, a retired medical physicist who was in Iraq working for the Christian Peacemaker Taskforce, was abducted in Baghdad on November 26 along with his colleagues, Tom Fox, 54, and Canadians James Loney, 41, and Harmeet Singh Sooden, 32.

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