The same video showed the gruesome simultaneous beheadings of at least 18 men described as Syrian military personnel, the latest in a series of mass executions and other atrocities carried out by IS.
"This is Peter Edward Kassig, a US citizen of your country," said a black-militant wearing a balaclava, the same outfit worn by the man who beheaded two American journalists and two British aid workers in earlier videos.
The man stood over a severed head bearing a resemblance to Kassig, a former American soldier who risked his life to provide medical treatment and aid to those suffering from Syria's civil war.
"Here, we are burying the first American crusader in Dabiq, eagerly waiting for the remainder of your armies to arrive," the militant said.
Dabiq is the site of a major 16th century battle in what is now northern Syria that saw the Ottomans defeat the Mamluks and begin a major expansionist phase of an empire the IS group considers to have been the last caliphate.
In a highly choreographed sequence earlier in the video, militants marched at least 18 prisoners said to be Syrian officers and pilots by a wooden box of long military knives, each taking one as they passed, then forced them to kneel in a line and decapitated them.
IS spearheaded a militant offensive that overran much of Iraq's Sunni Arab heartland since June after seizing major territory in neighbouring Syria, and carried out a series of atrocities in both countries.
The group has killed hundreds of Iraqi and Syrian tribesmen who opposed it, attacked religious and ethnic minorities, sold women as slaves, executed scores of Iraqi security personnel and carried out beheadings on camera.
'Horrified by cold-blooded murder'
British Prime Minister David Cameron said he was horrified by the video which claims American hostage Peter Kassig has been beheaded.
Kassig is also known as Abdul-Rahman, a name he took following his conversion to Islam while in captivity.
"I am horrified by the cold blooded murder of Abdul-Rahman Kassig. IS have again shown their depravity. My thoughts are with his family," Cameron, who is in Australia for a meeting of G20 leaders, said on Twitter.
COMMENTS (4)
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Peter Kassig converted to Islam and went to Syria to help people - that's suppose to be viewed as a "good thing" by normal people.
@paul: leave us alone - remove your fleets and umbrella protection of the Arab monarchies - we can assure you, we will do better without you.
Islam is a religion of peace. Every Muslim dreams of living in an Islamic caliphate.
dont do such work in muslim countries. they don't deserve it. let them solve these issues by themselves