Khun, 74, had had high blood pressure and diabetes for a long time, Yod said.
US drug officials believe he was responsible for at least half the heroin exports from the Golden Triangle - Laos, Myanmar and Thailand - during the 1980s.
The Shan hills of eastern Myanmar were his ancestral home and he projected himself as a liberator for the ethnic minority Shan.
At its peak he led a private army of about 20,000 men in the 1980s.
But in 1996 he signed a peace deal with the Myanmar government, and is since thought to have lived a luxury lifestyle under the protection of the Myanmar government.
Many of his former followers saw this a deserting the cause of the Shan.
Khuensai Jaiyen, a former fighter who acted as Khun's spokesperson for 10 years before a split in 1994, said: "He was a man with lofty ideals. He thought of becoming the liberator of Shan State.
"But when the people he was supposed to be leading or liberating didn't accept his leadership, he turned his back on them."