The death of Beltran Leyva is a boost for Felipe Calderon, the Mexican president, who launched a war against drug cartels after coming into office in 2006.
"This is a victory for Calderon in the short term, but his [Beltran Leyva's] position will be filled very quickly," said Alberto Islas, a security analyst.
The shootout came after suspected drug gangs dumped the severed heads of five police officers and a prosecutor outside a church in the northern state of Durango on Wednesday.
The heads were left in plastic bags discovered by rubbish collectors as blood ran out of the bags onto the street.
Islas said more violence was likely in the wake of Beltran Leyva's death, as rival drug gangs attempt to take back territory lost to the drug lord in recent years in southern Mexico and Mexico City.
The Beltran Leyva brothers, who were considered responsible for the importation and distribution of tonnes of cocaine into the US, had been involved in a bloody fight over smuggling routes into the US with former ally Joaquin "Shorty" Guzman.
|Beltran Leyva's death is a boost for Calderon in his war against drugs [AFP]
A $2.4 million bounty had been placed on Beltran Leyva's head by Mexican authorities seeking his arrest for organised crime activities and kidnapping.
In August, Eric Holder, the US Attorney General, announced an indictment against the drug lord and other Mexican smugglers for moving billions of dollars of cocaine across the US border.
Navy forces have increasingly joined army troops and federal police in the fight against drug barons
The US Treasury Department said last week the US had frozen the US assets of 22 individuals and 10 companies linked to the Beltran Leyva.
More than 16,000 people have been killed in drug-related violence between rival gangs and security forces in the last three years.