Rappani Khalilov and another militant were killed in Monday's 12-hour battle that broke out in a Dagestani village after police forces surrounded a house, said Mark Tolchinsky, a spokesman for the Interior Ministry's Dagestan division.
Authorities say Khalilov was behind the 2002 bomb attack on a military parade in the town of Kaspiisk that killed 42 people. His fighters also have been blamed for a wide range of attacks in Dagestan, which borders Chechnya, where Russian forces and separatists have fought two wars since 1994.
Khalilov was also believed to be one of the main figures in the 1999 incursion by Chechen terrorists into Dagestan that was aimed at establishing an Islamic state in the region.
Television pictures on Monday showed Russian tanks and armoured personnel carriers approaching a house in the scruffy, sun-baked town of Kizilyurt, west of the Dagestani capital Makhachkala.
Black smoke poured from one of the houses and Russian soldiers carrying rifles and rocket propelled grenades moved stealthily from wall to wall.
Russian troops and local pro-Moscow militia have suppressed large-scale terrorist activities in Chechnya. But terrorist groups are increasingly active in the neighbouring provinces of Dagestan and Ingushetia, Reuters reports.
Sergei Mironov, speaker of the upper house of Russia's parliament, told Chechen parliamentarians that he was in favor of increasing financing for the North Caucasus republic.
Mironov arrived in Chechnya On Sunday for a meeting with Chechen President Ramzan Kadyrov.
"The Chechen Republic deserves a special attention, which should be paid in rubles and large sums to be allocated under target programs," Mironov said. "You can count on my position as the Federation Council speaker that more federal funds [are needed] for the restoration and development of the Chechen Republic."
However, Mironov criticized the idea of introducing tax preferences for the republic citing negative experience in a number of regions.
Chechnya was devastated by two military campaigns, in 1994-1996 and 1999-2001, after which Moscow significantly scaled down its military presence in the republic. Random fighting and terrorist attacks still occur in the area, despite a widely publicized amnesty campaign announced by Russian authorities, rian.ru reports.
An objective analysis of where the United Kingdom and its Prime Minister stand one hundred days before the Brexit deadline. Let us see the facts, not conjecture