Argun police chief Ali Tagirov said local officers and a special police force acted on a tip and killed Sadulayev when he offered resistance.
NTV television reported that police also killed a militant who accompanied Sadulayev while two other rebel fighters managed to escape.
Sadulayev had succeeded Chechen rebel leader Aslan Maskhadov after he was killed by Russian forces last year.
(compiled from agency reports)
The Chechnya Conflict
The aftermath of a December 2002 Chechen resistance attack on the main government building in Grozny (epa)