Alexander Zakharchenko, who headed the self-proclaimed Donetsk People's Republic, died in the blast at the Separ (Separatist) café in the rebel-controlled city of Donetsk, according to state news agencies TASS and RIA-Novosti, citing local security officials.
Alexander Timofeev, another rebel leader, was seriously injured, said a statement released by the separatists.
Russian President Vladimir Putin, in a statement, called Zakharchenko a patriot and his death a "vile murder" intended to destabilize the region.
A top Russian law enforcement body, the Investigative Body, said it had opened a criminal investigation of the killing as a suspected act of international terrorism.
Foreign Ministry spokeswoman Maria Zakharova blamed Zakharchenko's death on the Ukrainian government.
"There is every reason to believe that the Kiev regime, which has repeatedly used similar methods to eliminate dissenters and unwanted people, is behind his murder," she told CNN.
The Ukrainian government declined comment.
Ukraine has accused Moscow of being behind a string of assassinations on Ukrainian soil. Several separatist commanders have been assassinated in the breakaway regions of eastern Ukraine, killings that have generally gone unsolved.
Zakharchenko took over the separatist government in 2014.
The conflict in eastern Ukraine, the bloodiest in Europe since the wars over the former Yugoslavia, has claimed more than 10,000 lives.
Years of negotiations over peace in eastern Ukraine have borne little fruit.
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