Henry Okah, the leader of the Movement for the Emancipation of the Niger Delta (MEND), was reportedly killed in detention in northern Nigeria.
Okah is said to have died from gunshot wounds on Tuesday, but there has been no official confirmation of his death.
"Disturbing reports just reaching us suggest that Henry Okah succumbed to injuries from gunshot wounds ... at a military hospital in Kaduna state ... after he was shot in what those interrogating him claim was an 'accidental discharge'," MEND said in an e-mail.
"MEND is giving the federal government ... the next 24 hours to confirm or deny this murder rumour."
'Okah alive'
A spokesman for Umaru Yar'Adua, the president, has said that Okah is alive. He is said to be in custody, but further details have not been given.
Last September, Okah was arrested in Angola on gun-running charges but MEND said he was transferred to Nigeria last Thursday.
He is one of two Nigerians believed to be involved in attacks on oil companies in the Niger Delta who were extradited from Angola.
Okah and Eduardo Atata were arrested by Angolan police for alleged arms and explosives trafficking
The rebel leader led a wave of attacks on the Nigerian oil industry, in which the group say they were fighting for equal distribution for the country's oil revenues.
Five decades of oil extraction in the Niger Delta have also polluted the region's land and water.
Since the beginning of 2006, attacks by fighters have cut oil production in Nigeria by 25 per cent. The country is Africa's biggest crude producer and eighth largest world exporter.
The government of Yar'Adua promised a 15-year development strategy aiming to address the causes of the violence in the Niger Delta.
Okah's faction responded to the proposal and declared a temporary ceasefire, but since his arrest, MEND loyalists resumed attacks, blowing up pipelines and ships and making frequent threats.