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Abu Musab al-Zarqawi, the terrorist leader behind many of the worst outrages of the Iraqi insurgency, has been killed in a United States air raid on an al-Qaeda safe house north of Baghdad.

Iraq's most wanted man, who had survived numerous American attempts to kill him, died with seven of his closest aides after US warplanes dropped two 500lb bombs on the building near Baquba, 40 miles north of Baghdad, last night.

His death was announced by Nouri al-Maliki, the new Iraqi Prime Minister, who shook his fist in jubilation as he told a press conference: "Today Zarqawi has been eliminated."

"This is a message to those who chose 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."

America had put a $25 million bounty on al-Zarqawi's head - which Mr al-Maliki later said would be honoured. "We will meet our promise," he said, without elaborating.

Al-Zarqawi is believed personally to have beheaded several Western hostages, including Ken Bigley, the Liverpool engineer killed in October 2004, and sent dozens of suicide bombers to their deaths in an attempt to deepen Iraq's sectarian divide.

He swore allegiance to Osama bin Laden in 2004, becoming leader of 'al-Qaeda in Iraq' - although his brutality and trademark of beheading his victims is said to have shocked even bin Laden's closest lieutenants.

"The man was an animal and he deserved what he got - and may he rot in hell," said Paul Bigley, whose brother was murdered by al-Zarqawi in October 2004. "He thinks he's going to paradise. I'm convinced the man is in hell - and may he rot there."

The death of al-Zarqawi deprives the foreign-led Sunni Muslim insurgency of a brutally efficient leader and organiser. Precious few Iraqis will mourn his passing, however - he was widely hated, even among Iraqi Sunni insurgents opposed to the US occupation.

President Bush and Tony Blair welcomed the news, but both also cautioned that al-Qaeda in Iraq would remain a threat. "We should have no illusions," the Prime Minister said. "We know they will continue to kill, we know that there are many, many obstacles to overcome. But they also know that our determination to defeat them is total."

Details of the raid in which al-Zarqawi is said to have died came at a later US military press conference at which several large photographs, apparently showing the face of the slain terrorist, were displayed on an easel in a wooden frame. A video was shown of the raid itself.

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