Grozny, Russia ? Police killed the Chechen rebel leader Saturday allegedly acting on a tip from within his network and dealing a possible blow to efforts to spread the increasingly Islam-inspired insurgency throughout southern Russia.

Abdul-Khalim Sadulayev was shot during a raid on a hideout in his Chechen hometown of Argun, nine miles east of Grozny. He had been planning a terror attack in Argun to coincide with the Group of Eight summit of leading industrialized nations in St. Petersburg in mid-July, the Moscow-backed Chechen premier claimed.

Wearing combat fatigues, Prime Minister Ramzan Kadyrov posed for TV cameras next to a half-naked bloodied body identified as the rebel leader’s. He said a close associate of Sadulayev’s tipped police to his whereabouts for the equivalent of $55.

“He urgently needed to buy a dose of heroin, so he sold his leader for heroin,” Kadyrov, flanked by his lieutenants, said with a grin.

The prime minister said his paramilitary police had wanted to capture Sadulayev but had to kill him when he resisted arrest. Russian television stations showed the basement of a house where the rebel leader allegedly was hiding, its wall riddled with bullets.

“The terrorists have been virtually beheaded. They have sustained a severe blow, and they are never going to recover from it,” Kadyrov said. “We must decisively end international terrorism in the whole of the North Caucasus.”

The mountainous Caucasus region encompasses southern Russia – including the breakaway Chechen republic – and the former Soviet republics of Georgia, Armenia, and Azerbaijan.

An intelligence agent and a police officer were killed in the operation, the Federal Security Service, the main KGB successor agency, said in a statement.

One rebel also was killed and two rebels escaped, NTV news reported.

Top rebel aide Ibrahim Mezhidov confirmed Sadulayev was killed, according to the Kavkaz Center Web site sympathetic to the rebels.