Abu Sayyaf beheaded a barangay chairman in Maimbung, Sulu on Sunday.
62-year-old Rodolfo Buligao was expected to be released after the militants told the family he would be freed.
Buligao was a barangay captain in Aliguay Island in Dapitan City, a high-end resort island off the northern end of Mindanao Island.
Two days after the promised release, the military found the headless body of a man who they believed to be Buligao.
The body was taken to Sulu Provincial Hospital in Jolo where it was positively identified.
Buligao was abducted in May along with two Coast Guard personnel in Aliguay Island in Dapitan City. the two Coast Guard members are still missing and a demand of one million pesos each has been set to free them.
An investigation into the event which led to the killing of Buligao show that negotiations collapsed after the ransom money was not attained.