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 terrorists 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.
Russia has left the list of 33 largest holders of US government bonds, after the country disposed of at least a third of remaining bonds