Residents in al Baate village in southern Somalia said Alabama-born Omar Hammami, commonly known as Abu Mansoor al Amriki or The American, and a British national of Pakistani origin known as Usama al Britani were shot dead in a dawn raid on their hideout.
Hammami's killing exposed widening rifts in al Shabaab's top ranks as the group affiliated to al Qaeda grapples with an African Union-led military offensive that has captured key cities from the militants, depriving them of revenues.
Hammami is believed to have arrived in Somalia aged 22 in late 2006, shortly before a US-backed Ethiopian military incursion into the war-shattered Horn of Africa country to rout an Islamist administration that had dislodged the government.
Fluent in Somali, Hammami swiftly became an influential leader of al Shabaab's foreign jihadists fighting to topple a government seen as a Western puppet and impose a strict interpretation of sharia law on Somalia.
Al Shabaab announced a formal alliance with al Qaeda in February 2012. Hammami was added to the US Federal Bureau of Investigation's Most Wanted Terror list in November that year and a £3 million bounty was offered for information leading to his capture.