An international manhunt is under way for a British jihadist believed to have perpetrated the on-screen beheading of American journalist James Foley.
Police and intelligence services are sifting through the gruesome footage for clues amid suggestions that the Islamic State (IS) extremist - referred to in the video as 'John' - is from London.
A former hostage, who was held for a year in the Syrian town of Raqqa, has told the Guardian the killer was the ringleader of a trio of UK-born extremists the captives nicknamed "The Beatles" because of their nationality.
David Cameron and US President Barack Obama have condemned murder as "hateful" and "barbaric", insisting it would not force them to back away from tackling IS in Iraq and Syria.
Mr Cameron, who cut short his holiday to return to Downing Street after the video surfaced, said it seemed "increasingly likely" that the killer was a UK citizen.
Hundreds of Britons are believed to be fighting on the front line in Syria and Iraq, and there are fears some could return to carry out terror attacks in this country.
"Let's be clear what this act is - it is an act of murder, and murder without any justification," Mr Cameron told reporters in Number 10.
"We have not identified the individual responsible, but from what we have seen it looks increasingly likely that it is a British citizen.
"This is deeply shocking. But we know that far too many British citizens have travelled to Iraq and travelled to Syria to take part in extremism and violence. And what we must do is redouble all our efforts to stop people from going.
"To take away the passports of those contemplating travel, arrest and prosecute those who take part in this extremism and violence. To take extremist material off the internet and do everything we can to keep our people safe. And that is what this Government will do."
Mr Obama said "no just God" could condone the killing of Mr Foley, who was seized in Syria in 2012, and IS would "fail" because they only wanted to destroy.
"One thing we can all agree on is that (IS) has no place in the 21st century," the President said.
"We will continue to confront this hateful terrorism and replace it with a sense of hope and stability.
"That's what Jim Foley stood for. A man who lived his work, who courageously told the stories of his fellow human beings and who was liked and loved by friends and family."
In a televised statement from near the presidential holiday home in Martha's Vineyard, Massachusetts, Mr Obama added: "Governments and peoples across the Middle East, there has to be a common effort to extract this (IS) cancer so that it does not spread."
Mr Foley's family also paid tribute to his bravery.
Speaking alongside wife Diane at their home in Rochester, New Hampshire, John Foley said: "It's difficult to find solace at this point in time, but Jim is free. We know he's in God's hands and ... we know he's in heaven."
The murdered journalist's younger brother Michael criticised the American government, saying he thought it could have done more to save him.
One of the agencies Mr Foley worked for, GlobalPost, has said IS threatened to execute him a week ago and the US authorities were informed.
The film shows Mr Foley, 40, who worked for organisations including Agence France-Presse and went missing in Syria in 2012, kneeling in a desert-like environment at an unknown location as an IS fighter stands by his side dressed in black and with his face covered.
Pausing and taking deep breaths, the distraught journalist said he wanted to call on family, friends and loved ones to "rise up against my real killers, the US government" as the IS fighter stood next to him brandishing a knife.
Speaking with an apparently English accent, the killer accused America of "aggression towards the Islamic state", adding: "You have plotted against us and gone far out of your way to find reasons to interfere in our affairs."
He said further actions in Iraq by America "will result in the bloodshed of your people".
Another captured journalist, Steven Sotloff, who went missing near the border of Syria and Turkey last year, is also seen.
His life depends on the US president's "next decision", the IS fighter warns.
The footage has been authenticated by the US and UK, but Scotland Yard has urged people to avoid spreading it through Twitter and Facebook - warning that to do so could be a criminal offence.
The US is thought to be considering an additional deployment of troops to Iraq to help repel the IS offensive that has secured swathes of the country.
But Mr Cameron, who is understood to have watched the video himself earlier today, stressed there would be no "knee jerk" escalation of British military involvement - warning that the West faced a "generational struggle" against Islamist extremism.
"I have been very clear that this country is not going to get involved in another Iraq war. We are not putting combat troops, combat boots on the ground, that is not something we should do.
Mr Cameron added: "I have been very clear as Prime Minister over the past four years that this battle that we face against Islamist extremism - not the religion of Islam but a poisonous, extremist, violent narrative - is a generational struggle.
"It is a battle we have to fight in our own country, it is a battle with allies using everything that we have - our aid, our diplomacy, and yes on occasions our military powers - that we have to fight, whether it is dealing with this problem in Somalia, in Mali, in Afghanistan, in Iraq, in Syria, because as much as we want to focus on keeping ourselves safe here at home, and that is my focus, what happens in these other far-flung places can come back and cause huge harm here too."