An unidentified gunman, in a car, shot Boris Nemtsov four times in the back as he crossed a bridge in view of the Kremlin, police say.
The Russian opposition leader died hours after appealing for support for a march on March 1 in Moscow against the war in Ukraine.
Russian President Vladimir Putin has condemned the murder, the Kremlin says.
Vladimir Putin has assumed “personal control” of the investigation into the killing, said his spokesman Dmitry Peskov.
It “bears the hallmarks of a contract killing,” said Dmitry Peskov.
President Barack Obama condemned the “brutal murder” and called on the Russian government to conduct a “prompt, impartial and transparent investigation”.
Thorbjorn Jagland, secretary general of the Council of Europe, condemned the killing, saying in a tweet: “I am shocked and appalled key opposition leader Boris Nemtsov was shot. Killers must be brought to justice.”
In a recent interview, Boris Nemtsov had said he feared Vladimir Putin would have him killed because of his opposition to the war in Ukraine.
Boris Nemtsov, 55, served as first deputy prime minister under President Boris Yeltsin in the 1990s.
He had earned a reputation as an economic reformer while governor of one of Russia’s biggest cities, Nizhny Novgorod.
Falling out of favor with Boris Yeltsin’s successor, Vladimir Putin, he became an outspoken opposition politician.
Boris Nemtsov was shot at around 23:40 on Friday, February 27, while crossing Moskvoretsky Bridge accompanied by a woman, Russia’s interior ministry said.
He was shot with a pistol from a white car which fled the scene, a police source told Russia’s Interfax news agency.
According to Russian-language news website Meduza, “several people” got out of a car and shot him.
One of the politician’s colleagues in his RPR-Parnassus party, Ilya Yashin, confirmed Boris Nemtsov’s death.
Flowers were left at the site of the shooting through the night.
In his last tweet, Boris Nemtsov sent out an appeal for Russia’s divided opposition to unite at an anti-war march he was planning for Sunday.
“If you support stopping Russia’s war with Ukraine, if you support stopping Putin’s aggression, come to the Spring March in Maryino on March 1,” he wrote.
Speaking earlier this month to Russia’s Sobesednik news website, Boris Nemtsov had spoken of his fears for his own life.
“I’m afraid Putin will kill me,” he said on February 10.
“I believe that he was the one who unleashed the war in the Ukraine,” Boris Nemtsov added.
“I couldn’t dislike him more.”
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