Local media quoted another party member as saying he was beaten with pipes and machetes.
"Terreblanche's body was found on the bed with facial and head injuries," the AFP news agency quoted a police spokesman as saying.
Appeal for calm
Jacob Zuma, South Africa's president, urged people to remain calm as opposition groups warned that the far-right leader's killing had created a potentially explosive situation.
"No one is allowed to take the law into his own hands," a statement from Zuma's office said.
||Terreblanche was born on a farm in the conservative Transvaal town of Ventersdorp on January 31, 1941
||He founded the AWB alongside six others in 1972 as a shadowy group seeking to protect the rights of the Boers' descendants
||In 1998, Terreblanche accepted "political and moral responsibility" before South Africa's Truth and Reconciliation Commission for a bombing campaign to disrupt the 1994 elections in which 21 people were killed and hundreds injured
"It is against this background that the murder of Terreblanche must be condemned, irrespective of how his killers think they may have been justified. They had no right to take his life."
The killing comes at a time of worries over increasing racial polarisation in South Africa, heightened by a row over the singing of a song by the head of the ruling ANC party's youth league with the lyrics "Kill the Boer".
Terreblanche always described himself as a Boer.
Terreblanche's Afrikaner Resistance Movement said it would avenge the killing, but urged its members not to act until after a meeting on May 1 to decide the way forward for the group.
"We will decide upon our actions to avenge Mr Terreblanche's death. We will take action and the specific action ... will be decided upon at our conference," Andre Visagie, the movement's secretary-general, was quoted as telling the AFP news agency.
Terreblanche, 69, had kept a low public profile since his release in 2004 from prison after serving three years of a five-year term for for attempted murder.
He had lived in relative obscurity despite the revival of his party two years ago and recent efforts to form a united front among white far-right groups.
Terreblanche founded the white supremacist Afrikaner Weerstandsbeweging (AWB) party in 1970, to oppose what he regarded as the liberal policies of the then-South African leader, John Vorster.
He wanted to create all-white states within South Africa in which blacks would only be allowed as guest workers.
He threatened to take the country by force if the white government capitulated to the African National Congress.
Ebrahim Fakir, an African analyst, told Al Jazeera that it is unlikely Terreblanche's political cause will "necessarily die with him".
"It may lose some of its momentum; It may of course lose some of the fiery rhetoric that [Terreblanche] was known for in arguing for Afrikaner rights.
|Terreblanche campaigned for the apartheid system until the early 1990s [GALLO/GETTY]
"Whether it loses momentum or not is a moot point, quite simply because it never gathered large amounts of steam in the first place. It didn't have much social support even amongst Africaners.
"There is no doubt that Terreblanche's death will exacerbate racial tensions in the immediate area in which he lived.
"But you will have this kind of tête-à-tête going on with black South Africans feeling a sense of victory, of rising above oppression and sending perhaps a not so subtle message that after the accumulation of years of racism is something which will be met in an equally brutal way," he said.
After the white government conceded, the ANC overwhelmingly won 1994 elections and has won every election since with more than 60 per cent of votes.
But the AWB - whose flag resembles the Nazi Swastika - was revived in 2008.
The Afrikaners are descendants of the Boers, the first whites who arrived in South Africa 300 years ago and avoided assimilation with English-speaking settlers.
Their short-lived republics, in the Orange Free State, Transvaal and northern Natal, were broken up after the 1899-1902 Anglo-Boer War.
Terreblanche wanted to reconstitute them.