Fahadullah, a Pakistani national, was killed during a fierce clash in northern Kupwara district, bordering Pakistan-administered Kashmir.
Fahadullah was serving as LeT`s "divisional commander" for north Kashmir and his death is a "big setback" to the group, senior police officer Muneer Khan told reporters.
Police said government forces also shot dead another "senior commander" of LeT in southern Poonch district during a clash on Sunday.
The slain commander was identified as Abu Usman, police said.
The Pakistan-based LeT has been blamed by India for the November 2008 Mumbai attacks that killed 166 people. It has denied any role in the attacks.
More than 47,000 people have been killed, according to an official count, since an insurgency erupted in 1989 against Indian rule in the region.
Violence dropped after India and Pakistan launched a peace process in 2004 but rebel attacks have escalated over the past fortnight. (*)
Editor: Kunto Wibisono
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