Amjad Hussain Farooqi had been wanted for his alleged role in the kidnapping and beheading of Wall Street Journal reporter Daniel Pearl in 2002 and two assassination attempts against President Gen. Pervez Musharraf in December 2003.
"I as chief spokesman for the government of Pakistan confirm that our forces have killed Amjad Hussain Farooqi," Information Minister Sheikh Rashid Ahmed told The Associated Press by phone from Amsterdam, where he has gone on an official trip with Musharraf.
Ahmed said "two or three other people were also arrested during a big gunfight." He declined to identify them but said they were still being questioned by authorities and were "very important."
"This is the work of our security agencies, and they have done a great job," Ahmed said.
An intelligence official in Karachi identified the arrested men as Abdul Rehman and Yaqoob Farooqi. It was not clear what relation, if any, Yaqoob Farooqi had to Amjad Hussain Farooqi. Other officials could not immediately confirm that information.
Pakistan is a key ally of the United States in its war against terrorism and has arrested more than 600 al Qaeda suspects, including several senior figures in the terror network. Many of them have been handed over to U.S. authorities.
Since mid-July, Pakistan says it has arrested at least 70 terrorist suspects, including Mohammed Naeem Noor Khan, an alleged al Qaeda computer expert, and Ahmed Khalfan Ghailani, a Tanzanian suspect in the 1998 bombings of U.S. embassies in east Africa that killed more than 200 people.
Earlier Sunday, intelligence officials said authorities launched a raid on the house in Nawabshah, a town about 125 miles northeast of the main southern city of Karachi, after police received a tip that Farooqi was hiding there.
Two men who tried to flee — one of whom was injured in the gunbattle — were arrested, said local police official Ismail Jamali, adding that intelligence officials led them away in blindfolds.
A paramilitary official, speaking on condition of anonymity, said the siege lasted four hours.
The official said the suspect who was killed — presumably Amjad Hussain Farooqi — had shouted in Urdu, the main language in Pakistan, that he'd prefer death to capture. The suspect also pointed to the sky and shouted: "I fulfilled my promise to Allah," he said.
One woman and two children were also taken from the house. Firefighters were called to put out a blaze in one room that broke out during the gunbattle.
After a search, officials left the house carrying three boxes. It was not immediately clear what they contained.
Farooqi was believed to have been an associate of Khalid Shaikh Mohammed, the reputed al Qaeda No. 3 captured in Pakistan last year.
Farooqi had been missing since Pearl was abducted in Karachi in January 2002.
Pearl's captors beheaded the journalist and released a videotape of the killing. Four Islamic militants have been convicted of his kidnapping but seven other suspects — including those who allegedly slit his throat — remain at large.
Farooqi, thought to be 32, was born in a village in eastern Punjab province. His family says he was radicalized by a visit to Kashmir, where he trained with Islamic militants fighting against Indian security forces. He later visited Taliban-ruled Afghanistan.
In May, security officials identified Farooqi as an organizer, with Libyan al Qaeda suspect Abu Faraj al-Libbi, of two attempts to assassinate Musharraf last December by blowing up his motorcade in Rawalpindi, a city near the capital, Islamabad. Musharraf, who has enraged Islamic militants through his support of the U.S.-led war on terrorism, escaped injury both times but several other people were killed.
Farooqi is also suspected of taking part in the hijacking of an Indian airliner to Kandahar, Afghanistan, in 1999 that resulted in a hostages-for-prisoners exchange that freed British-born militant Ahmed Omar Saeed Sheikh from an Indian prison. Sheikh has been sentenced to death for his role in setting up the Pearl abduction.