Kim Sun-il's body was found by the U.S. military between Baghdad and Fallujah, west of the capital, at 5:20 p.m. Iraq time, said South Korean Foreign Ministry spokesman Shin Bong-kil.
The South Korean embassy in Bagdad confirmed that the body was Kim by studying a picture of the remains it received by e-mail, Shin said.
"It breaks our heart that we have to announce this unfortunate news," Shin said.
Al-Jazeera said it had received a videotape showing that Kim Sun-il had been executed.
Kim, 33, worked for a South Korean company supplying the U.S. military in Iraq and was abducted last week, according to the South Korean government. Responding to the murder, South Korea said Wednesday it will go forward with plans to send troops to Iraq.
In other developments:
Kim was shown in the videotape kneeling, blindfolded and wearing an orange jumpsuit similar to those issued to prisoners at Guantanamo Bay, Cuba.
The tape showed five hooded men standing behind Kim, one reading a statement and gesturing with his right hand. Another captor had a big knife slipped in his belt.
The video as broadcast did not show Kim being executed.
Al-Jazeera said the video claimed the execution was carried out by the al Qaeda-linked group Monotheism and Jihad.
News of the apparent beheading reached the White House in the midst of a briefing by spokesman Scott McClellan, who said he was not aware of the report.
"That would be horrible news," McClellan said. "There simply is no justification for those kinds of atrocities that the terrorists carry out. We've seen some of the barbaric nature of the terrorists recently when it comes to an American citizen that was killed in Saudi Arabia and it is a reminder of the true nature of the terrorist."
Al-Jazeera did not say when Kim was killed.
Kim's kidnappers had initially threatened to kill him at sundown Monday unless South Korea canceled a troop deployment to Iraq. The Seoul government rejected the demand, standing firm with plans to dispatch 3,000 soldiers starting in August.
NKTS, a South Korean security firm doing business in Iraq, told the AP in Baghdad earlier Tuesday that Kim was still alive and that negotiations for his release continued, with the company president expected to arrive in Baghdad from Seoul by Wednesday.
The South Korean government said Tuesday it will evacuate the last of its 22 nationals in Iraq by early next month. Most work for South Korean companies that supply the U.S. military, said Commerce, Industry and Energy Minister Lee Hee-beom.
Hundreds of South Koreans attended a candlelight vigil in Seoul Monday to protest the government's decision to send 3,000 troops to Iraq, the third-largest contingent after the United States and Britain. South Korea now has 600 military medics and engineers in the southern city of Nasiriyah.
An American hostage,, was beheaded in Saudi Arabia last week. In May, American businessman Nick Berg was beheaded in Iraq.
The recent abductions and attacks appear aimed at undermining the interim Iraqi government set to take power June 30, when the U.S.-led occupation formally ends.
Five Iraqi contractors were killed Monday in an ambush on their three-vehicle convoy 30 miles south of Mosul. The U.S. command said two others were wounded.
U.S. troops were attacked twice on Monday in the predominantly Sunni Muslim city of Baqouba, 35 miles northeast of Baghdad, said Maj. Neal O'Brien of the 1st Infantry Division.
In the first attack, one soldier was wounded by an improvised explosive device — a homemade bomb. In the second attack, two soldiers were wounded by small arms fire and evacuated to the 31st Combat Support Hospital in Baghdad, O'Brien said. All three are in stable condition.
Also Monday, a mortar attack in north-central Baghdad killed a U.S. soldier and wounded six other soldiers, the military said. A contract worker was also wounded.
Iraqi insurgents also gunned down four U.S. Marines on Monday west of Baghdad, apparently stripping the dead of their flak jackets before fleeing.
A videotape delivered to Associated Press Television News showed the bodies of the four Marines lying in what appeared to be a walled compound. They were in uniform and one was slumped in the corner of a wall.
Brig. Gen. Mark Kimmitt, coalition deputy operations chief, confirmed the killings but gave few details. He said a U.S. quick reaction force found the bodies after the troops failed to report to their headquarters as required.
Chanting anti-U.S. slogans, hundreds rallied in Fallujah on Monday to protest an American airstrike on Saturday. Demonstrators accused the Americans of falsely claiming that al-Zarqawi had sought refuge in Fallujah to create an excuse to attack the city.
Kimmitt told reporters the attack killed "key personnel in the Zarqawi network" but he would not confirm that any foreign fighters were among the dead.
Iraqi officials in Fallujah, long one of the centers of anti-American militancy, maintain the attack killed only Iraqi civilians. The Iraqi Health Ministry said at least 17 people died.