Canadian PM Justin Trudeau has condemned the "cold-blooded murder" of a Canadian by terrorists in the Philippines who were holding him hostage.
Mr Trudeau confirmed that the victim was John Ridsdel of Calgary, Alberta. He was 68 years old.
Mr Ridsdel was one of four tourists - including Canadian Robert Hall, a Norwegian man and a Filipino woman - that were kidnapped last September by Abu Sayyaf militants from a marina on southern Samal Island.
The militants had threatened to kill one of the three male hostages if a large ransom was not paid by 3pm Monday local time (0800 GMT).
Mr Trudeau says his government will work with the government of the Philippines and international partners to pursue those responsible for this "heinous act".
Two men on a motorcycle left Mr Ridsdel's head, placed inside a plastic bag, along a street in Jolo town in Sulu province and then fled, Jolo police chief supt Junpikar Sitin said.
Jolo Mayor Hussin Amin condemned the beheading, blaming Abu Sayyaf militants, who have been implicated in past kidnappings, beheadings and bombings.
"This is such a barbaric act by these people and one would be tempted to think that they should also meet the same fate," Mr Amin said.
Philippine forces were moving to rescue the abductees as the Abu Sayyaf's deadline for the ransom payment lapsed, the military said.
The militants reportedly demanded 300 million pesos (€5.7m) for each of the foreigners, a reduction from their earlier demands.
The hostages were believed to have been taken to Jolo Island in Sulu, a jungled province where the militants are thought to be holding a number of captives, including 14 Indonesian and four Malaysian crewmen who were abducted at gunpoint from three tugboats starting last month.
"Maximum efforts are being exerted ... to effect the rescue," the military and police said in a joint statement, without divulging details of the rescue operation, which was ordered by President Benigno Aquino III.
About 400 Abu Sayyaf militants were involved in the kidnappings, it said.
In militant videos posted online, Mr Ridsdel and fellow Canadian Robert Hall, Norwegian Kjartan Sekkingstad and Filipino Marites Flor were shown sitting in a clearing with heavily armed militants standing behind them.