Haji Gilani and his nephew were gunned down in Deh Rawood on Thursday night as they walked past their home, said Dad Mullah, a spokesman for the Uruzgan provincial government.
He said six gunmen shot the two men and fled. No arrests have been made and police said they were investigating. But Mullah said there was no immediate evidence of a personal feud, and he suspected Taliban operatives were behind the killing.
Presidential spokesman Sayed Fazel Akbar, however, said he believed a tribal feud may have been the reason for the murder.
"This was not a political murder. There was some enmity, some personal differences between two villages or two tribes," Akbar said.
Gilani was the first man to give Karzai shelter in Uruzgan province as he launched his anti-Taliban revolt weeks before the religious militia collapsed under heavy U.S. bombing in late 2001.
Karzai entered Afghanistan secretly with only a handful of close followers and relied heavily on anti-Taliban sympathizers for support and protection. He slipped past Taliban checkpoints on the back of motorcycles, and lived for days in homes of followers who risked their lives to protect him.
Akbar said Karzai had asked his brother, Ahmed Wali Karzai — who serves as the president's representative in the southern city of Kandahar — to attend memorial services.
"He was a friend of Karzai and we are so sorry for this unhappy incident," Akbar said. "Mr. Karzai told his brother to go the village to participate in the memorial ceremony and give the condolences of Karzai to the family and to the people."
In recent weeks, southern Afghanistan has been wracked by several attacks by suspected Taliban, including the killing of an International Red Cross worker and an ambush on a U.S. military convoy that killed two American servicemen.
There are fears that Taliban remnants are reorganizing their forces in an effort to destabilize Karzai's fledgling government. There have been several so-called night letters warning Afghanistan against working with foreigners, and threatening those that do with death.
The latest edict by hunted Taliban leader Mullah Mohammed Omar just two weeks ago threatened more attacks, declared a jihad against international forces and told Afghans they would be considered the enemy if they continued to work with the government.