A senior State Department official identified the slain American in the video as Nicholas Berg, a businessman from Pennsylvania who had been missing in Iraq since mid-April.

Berg was decapitated with a large knife, according to US networks which did not show his death but described it as horrific. Berg's body was found by the side of a road near Baghdad at the weekend.

The tape on the Islamic militant web site with links to al-Qaeda was reportedly titled "Abu Mussab al-Zarqawi slaughtering an American", referring to the wanted al-Qaeda agent.

The Bush administration has vowed to catch the killers of American hostage Nick Berg who filmed themselves cutting off his head after seizing him in Iraq. Nick Berg's distraught family have partly blamed the coalition for creating the circumstances in which he was abducted while seeking work there.

His captors said they were avenging the abuse of Iraqi prisoners, new images of which are to be released yesterday. The CIA is said to be checking claims that Abu Musab al-Zarqawi, a suspected top member of the Islamic militant network al-Qaeda, was involved in the killing of Berg.

Meanwhile, US troops killed at least 20 fighters loyal to radical Shia cleric Moqtada al-Sadr in a battle in the Iraqi city of Karbala, the US army said yesterday.