Hugh Torney, who was in his 40s, was a former chief-of-staff of the organisation, and has long been regarded by the security forces as one of Northern Ireland's most dangerous men.
He was killed, apparently by former associates, as he and another man stood outside a house in Lurgan, Co Armagh. The gunmen opened fire from a passing car, hitting both Torney and his companion.
Torney's companion was seriously injured in the attack. Police said that two guns were found at the scene of the shooting, and one theory is that Torney was armed when he was shot.
The car used by the gunmen was found burning a few miles away in Waringstown.
There was no immediate claim of responsibility for the murder but security sources agreed the shooting was almost certainly linked to the feud.
Torney's was the sixth death this year in the INLA feud. At the time of the first killing, that of his rival Gino Gallagher, it was reported that Torney had ordered the murder.
He has been on the run since last year when he skipped bail in the Irish Republic. In April last year he was arrested in a van carrying a large number of weapons north.
He has been the subject of a number of assassination attempts, both during this feud and in previous violent divisions within the INLA. Republican and security sources both say that over the years he was involved in innumerable shootings and bombings, including a number of killings.
As a prominent member of one INLA faction, he was regarded as a marked man in an organisation which has lost many leading members in a number of vicious feuds.
He was charged with murder in a number of "supergrass" cases in the 1980s, but was acquitted when these collapsed. Several years ago he was named in a British court as having despatched INLA bombers to England.
Brid Rodgers, the local SDLP representative, condemned the murder and called on all political parties to do so.
"People do not want a return to the days of summary justice and murder," he said.