The 44-year-old was thought to be being held by Islamic militants in Syria after being taken hostage in March last year.
A video was released tonight which appears to show Mr Haines talking to the camera before being murdered.
Prime Minister David Cameron has described the beheading of British aid worker David Haines as “an act of pure evil”.
The Prime Minister said: “This is a despicable and appalling murder of an innocent aid worker. It is an act of pure evil.
“My heart goes out to the family of David Haines who have shown extraordinary courage and fortitude throughout this ordeal.
“We will do everything in our power to hunt down these murderers and ensure they face justice, however long it takes.”
Mr Cameron returned to Downing Street shortly after midnight and will chair a meeting of the Government’s emergency Cobra committee later this morning.
A spokeswoman for the Foreign Office said: “We are aware of the video and are working urgently to verify the contents.”
The news came hours after the family of Mr Haines issued a plea to his captors to contact them.
The video begins with an interview clip of the Prime Minister and then features Mr Haines dressed in orange overalls and kneeling down in front of a man holding a knife in what appears to be a desert location.
The victim looks into the camera and says: “My name is Daivd Cawthorne Haines. I would like to declare that I hold you David Cameron entirely responsible for my execution.
“You entered voluntarily into a coalition with the United States against the Islamic State just as your predecessor Tony Blair did, following a trend against our British prime ministers who can’t find the courage to say no to the Americans.
“Unfortunately it is we the British public that in the end will pay the price for our Parliament’s selfish decisions.”
The militant, who appears to have a British accent, then says: “This British man has to the pay the price for your promise, Cameron, to arm the Peshmerga against the Islamic State.
“Your evil alliance with America which continues to strike the Muslims of Iraq and most recently bombed the Haditha Dam will only accelerate your destruction and playing the role of the obedient lapdog Cameron, will only drag you and your people into another bloody and unwinnable war”, the militant continues.
The video then shows the man take a knife to Mr Haines’ throat, before the victim’s dead body is shown.
The militant adds: “If you, Cameron, persist in fighting the Islamic State then you like your master Obama will have the blood of your people on your hands.”
Militants from Islamic State previously beheaded two American journalists, posting the evidence online in gruesome videos featuring a masked jihadist with a British accent.
The Foreign Office said Mr Haines’s family wish to be left alone. A spokeswoman said: “If true this is another disgusting murder. We are offering the family the family every support possible.
“They ask to be left alone at this time.”
Labour leader Ed Miliband said: “I am sickened at the disgusting, barbaric killing of David Haines.
“David Haines was somebody whose only purpose was to help innocent people, themselves victims of conflict.”
Mr Haines had a teenage daughter in Scotland from a previous marriage and a four-year-old daughter in Croatia from his present marriage.
Educated at Perth Academy secondary school, he worked for aid agencies in some of the world’s worst trouble spots, including Libya and South Sudan.
He was in Libya during its civil war in 2011, working as head of mission for Handicap International, which helps disabled people in poverty and conflict zones around the world.
Mr Haines was taken hostage while working for ACTED in Syria in March 2013, having previously helped people in Libya and South Sudan.
ACTED has previously said that the threats made to the Scotsman’s life were “intolerable”.
In a statement, it said: “ACTED strongly condemns the violence and threats against David. A man’s life should never be threatened on account of his humanitarian commitment.”
The charity said Mr Haines had worked as “a humanitarian” since 1999, helping people in the Balkans, the Middle East and Africa.
When he was taken by jihadists in Syria he was working to help “tens of thousands of people affected by the crisis” created by the long-running civil war.
Colonel Richard Kemp, former commander of British forces in Afghanistan, said: “Having worked in British Government on hostage rescue I know how much effort has gone in to saving David Haines. Now is the time for retribution.