A three-day stand-off began on Saturday in Andahuaylas when rebel leader Antauro Humala and a group of 125 armed men seized a police station in the town, which is about 440km southeast of the capital, Lima.
Prior to his surrender on Monday night, Humala rescinded an earlier offer to lay down his arms, accusing the government of violating the terms of the deal to maintain their distance from a perimeter his men set up around the besieged police station.
That offer largely stemmed from a phone call he had had with his brother, Lieutenant-Colonel Ollanta Humala, who was forcibly retired from his post as a military attache at the Peruvian Embassy in South Korea recently.
Ollanta Humala also heads the rebel group.
"These soldiers, these romantics, these young boys have risked their skins for their nationalist ideals," Humala said in a radio address on Sunday, during which he announced the first deal.
"They keep mobilising troops when it was agreed with the mediating commission they would not," Humala said.
He said government forces were "placing sharpshooters on the roofs of buildings" 150m away.
"They keep mobilising troops when it was agreed with the mediating commission they would not"
Peruvian rebel leader
With the initial offer off the table, however, small groups of soldiers and police were deployed throughout downtown Andahuaylas.
After learning of the government's warning, Humala went to the town's main plaza, where thousands of residents had gathered demanding a peaceful settlement.
There, Humala reported that he had reached a deal with authorities for a three-hour truce to re-negotiate the terms of his surrender.
While returning to the police station, his men reportedly started firing their weapons into the air.
Peru's rebels want a nationalist
state based on the Inca empire
Humala told Radioprogramas that government snipers opened fire, killing one of his men and wounding another.
He said a young resident of the town was also killed.
A reporter saw the rebels lower the body of the dead man from the roof of the police station, where he had been a lookout. In October 2000, the Humala brothers led 50 followers in a short-lived military uprising, a month before the collapse of then president Alberto Fujimori's corruption-ridden, 10-year government.
The death of the civilian could not be immediately confirmed.
Antauro Humala had been forced to retire from the army three years earlier.
The revolt failed to spark the wider rebellion the brothers had hoped for in barracks across the nation.
The Humala brothers and their followers were granted amnesty in December 2000 by Peru's Congress.
Ollanta Humala was transferred for overseas duty, while Antauro Humala forged a small but vocal political movement in his brother's name.
The rebel group, which wants to establish a nationalist indigenous movement modelled on the ancient Inca empire, had demanded the resignation of President Alejandro Toledo, accusing him of selling out Peru to business interests in Chile, a historic rival.
President Alejandro Toledo's
popularity has sunk to only 9%
Toledo has refused to step down.
The president, who took office in July 2001 with a popularity rating of nearly 60%, has tried to distance himself from a series of corruption scandals during the past year involving relatives and cabinet ministers.
His approval rating has sunk to about 9%.