Brigadier-General Abdul Kareem Khalaf told Reuters: "we have definite intelligence reports that al-Masri was killed today".
Another source in the ministry also said Masri had been killed. Khalaf said the battle happened near a bridge in the small town of al-Nibayi, north of Baghdad.
Both Khalaf and the other source in the ministry said the authorities did not have Masri's body.
The US military said it could not confirm the reports.
"I hope that it is true, but we want to be very careful to make sure," said Lieutenant-Colonel Christopher Garver, a spokesman for the US military in Iraq.
There has been increasing friction between Sunni Islamist al-Qaeda and other Sunni Arab insurgent groups, particularly over al-Qaeda's indiscriminate killing of civilians in Iraq.
Masri, who is also known as Abu Hamza al-Muhajir, assumed the leadership of al-Qaeda in Iraq after Jordanian militant Abu Musab al-Zarqawi was killed in a US air strike in June 2006.
US and Iraqi officials accuse al-Qaeda of trying to tip Iraq into full-scale civil war between Iraq's majority Shi'ites and minority Sunni Arabs with a campaign of spectacular car bombs attacks that have killed thousands.
Iraqi officials also blame al-Qaeda for destroying a holy Shi'ite shrine in Samarra a year ago, an act that unleashed a surge in sectarian bloodletting.
The US military commander in Iraq, General David Petraeus, said last week that al-Qaeda was now "probably public enemy number one" in Iraq.
Masri, an Egyptian, has been described by the US military as a former close Zarqawi associate who trained in Afghanistan and formed al-Qaeda's first cell in Baghdad. The United States has a $US5 million ($A6 million) bounty on Masri's head.












