Imad Mugniyah, a terrorist mastermind on American and European Union most wanted lists, was killed in a blast in Damascus on Tuesday, according to a report by Hizbullah's al-Manar television station.
The militant Shiite organization said Mugniyah was assassinated by Israeli agents.
Mugniyah, who has been in hiding for years, was among the fugitives indicted in the United States for the 1985 hijacking of a TWA airliner in which a US Navy diver was killed and the abduction of westerners in the country during the 1980s.
Scene of the blast in Damascus Tuesday (Photo: AFP)
The United States considers Mugniyah to be the man behind the bombing at the American embassy in Beirut and the attack against the US Marines' headquarters in Lebanon in 1983, which killed over 200 Americans.
"With all pride we declare a great jihadist leader of the Islamic resistance in Lebanon joining the martyrs ... The brother commander hajj Imad Mugniyah became a martyr at the hands of the Zionist Israelis," said a statement carried on Hizbullah's television.
Prime Minister Ehud Olmert's office refuted the accusations, saying that "Israel rejects the attempt by terrorist groups to attribute any involvement (to Israel) in this incident."
A statement read that "Israel is clarifying the reports from Lebanon or Syria in connection with the death of the senior Hizbullah member and is learning for first time the details from this incident as they are being reported in the media in the last few hours."
Hizbullah's announcement came a few hours after a late night explosion in Damascus destroyed a vehicle. Witnesses in Damascus said at the time that a passerby was killed as security forces sealed off the area.
Mugniyah (at the back) in the TWA airliner's cockpit - June 1985 (Photo: AFP)
Al-Manar television broadcast another statement from the Shiite Muslim militant group, saying a funeral will be held on Thursday.
It urged supporters to turn out in its stronghold in south Beirut to "carry on our shoulders a leader we were proud with his leadership and a martyr we're honored by his martyrdom."
"Let us make our voice heard by all the enemies and murderers that we will make victory no matter how the sacrifices are," Hizbullah said.
Mugniyah is believed by Israel
to have been involved in planning the 1992 bombing of Israel's embassy in Argentina in which 29 people were killed and the blast at a Buenos Aires Jewish center two years later that killed 95.
commander was also involved in numerous terror attacks on Israel's border with Lebanon, including the kidnapping of Israeli soldiers Benny Avraham, Adi Avitan and Omar Souad, and apparently also the abduction of Eldad Regev and Ehud Goldwasser.
The assassination sends a powerful warning to the Damascus-based leaders of Hamas, the Palestinian militant group which is backed by Iran.
Hamas spoke out against Mugniyah's assassination. "We condemn this crime and we emphasize the Muslim nation must rise up to confront the Zionist devil which is backed by the Americans," said Hamas spokesman in Gaza, Samir Abu Zuhri.
The announcement of his death said Mugniyah for 20 years has been the target of "Zionists and oppressors" - in Hizbullah and Iranian parlance a reference to Israel and the United States.
Roni Sofer contributed to the report