A NATO statement confirmed Afghan reports on the death of the feared militant commander during a U.S.-led coalition operation supported by NATO troops.
Dadullah, a top lieutenant of Taliban leader Mullah Omar, was killed Saturday in the southern province of Helmand, said Said Ansari, the spokesman for Afghanistan's intelligence service. Afghan forces assisted in the operation.
"Mullah Dadullah Lang will most certainly be replaced in time, but the insurgency has received a serious blow," the NATO statement said.
A Pakistani intelligence official, speaking on the condition that he would not be named, told CBS News' Farhan Bokhari that Mullah Dadullah's death "would mark one of the most significant setbacks to the Taliban in a very long time."
The official said Mullah Dadullah had emerged not only as a key Taliban commander in the past two to three years but was probably "among a handful of people who knew more about the Taliban operational strategy than anyone else."
Dadullah is one of the highest-ranking Taliban leaders to be killed since the fall of the hardline regime following the U.S.-led invasion in 2001, and his death represents a major victory for the Afghan government and U.S. and NATO troops.
"Mullah Dadullah was the backbone of the Taliban," Kandahar Gov. Asadullah Khalid said. "He was a brutal and cruel commander who killed and beheaded Afghan civilians."
Khalid showed Dadullah's body to reporters at a news conference in the governor's compound. An Associated Press reporter said the body, which was lying on a bed and dressed in a traditional Afghan robe, had no left leg and three bullet wounds: one to the back of the head and two to the stomach.
The AP reporter said the body appeared to be Dadullah's based on his appearance in TV interviews and Taliban propaganda videos.
But Qari Yousef Ahmadi, a purported Taliban spokesman, denied that the Taliban commander had been killed.
"Mullah Dadullah is alive," Ahmadi told AP by satellite phone. He did not give further details.
An Arab diplomat based in Pakistan who is not authorized to speak to the media told CBS News he did not expect the Taliban to immediately name a replacement for Mullah Dadullah.
"The Taliban will probably keep on pretending for a while that Dadullah is not dead so that the morale of their troops doesn't fall," the diplomat said. "But ultimately, a replacement will emerge to take charge."