JAKARTA - Indonesia's most wanted Islamist militant was killed in a police shoot-out in Central Java, police said on Thursday, lifting a major security threat ahead of a planned visit by U.S. President Barack Obama.

Malaysian-born Noordin Mohammad Top, who set up a violent splinter group of regional militant network Jemaah Islamiah, was widely considered the mastermind of the bomb attacks on two luxury hotels in Jakarta in July, as well as other attacks in Bali and in Jakarta which killed scores of Westerners and Indonesians.

National police chief Bambang Hendarso Danuri announced Top's death at a news conference, triumphantly holding up photos to show the match between Top's fingerprints and those on police file, as reporters and police in the room cheered.

He said police had also seized documents, laptops and weapons in the raid.

Local media, quoting police sources, had trumpeted Top's death last month during a police raid in Central Java, only to have forensic tests prove that wrong days later.

But Danuri said that there 14 points of match between the fingerprints, while only 11 were required for a confirmation.

He said the militant was carrying a loaded Beretta pistol when found. Metro TV later showed the bearded and bloated face of Top emerging out a partly unzipped orange body bag.

Indonesia, Southeast Asia's biggest economy and the world's most populous Muslim country, has been under intense pressure to capture or kill Top ahead of Obama's visit in November.

It's a huge blow for the extremist organizations in Indonesia and the region, said Sidney Jones, an expert on Islamic militants with the International Crisis Group.

It's a major success for the police but it doesn't mean, unfortunately, that the problem of terrorism is over. It's still unclear how many people were in Noordin's group and there are a number of fugitives still at large who have at least the potential to replace him as the leader of an al Qaeda-like organization.

National police spokesman Nanan Soekarna said three people had been captured in the overnight raid on a house near Solo, including the wife of the man renting the house and two others, who were detained earlier.

We also confiscated explosives, weapons and a grenade from the house, Soekarna said, adding later that eight sacks of explosives had been found.

Three other people killed in the raid included members of Top's inner circle, police and analysts said.

Police have been searching for several people believed to be behind the near-simultaneous attacks on the Ritz-Carlton and JW Marriott hotels on July 17 in which nine people, including two suicide bombers, were killed and 53 wounded.

The July bomb attacks in Jakarta ended a four-year lull in militant attacks in Indonesia. Subsequent police investigations showed that Top's group of militants had planned to assassinate President Susilo Bambang Yudhoyono at his home using a suicide truck bomb.

The president said Top's death was a big boost for security.
With the death of Noordin Mohammad Top and of Doctor Azahari, I believe we could reduce the seriousness of the terror threat to Indonesia, Yudhoyono told reporters at a fast-breaking event during the Muslim holy month of Ramadan.

Azahari Husin, a Malaysian bomb maker and close ally of Top, was killed during a police raid in East Java in 2005.

Top, a key recruiter, strategist and financier for Jemaah Islamiah, has been on the run for nine years, eluding capture on several occasions.

He and his associates often used safe houses in Central Java as hideouts, helped by a network of sympathizers in the area, and relied on couriers, rather than easily tracked mobile phones, to communicate with his cells.

Purbaya Yudhi Sadewa, an analyst at the Danareksa Institute, said Top's death would help improve investment sentiment.

This is plus-plus news for the economy, said Sadewa, who said he expected Indonesian financial markets to see more gains.

Moody's Investors Service also raised Indonesia's sovereign rating on Wednesday by one notch to Ba2 on improving economic prospects.

Helped by improved economic and political stability under Yudhoyono, the rupiah is the best performing currency in Asia so far this year, while Jakarta stocks are up more than 80 percent this year and bond prices have also rallied.

(Additional reporting by Telly Nathalia and Sunanda Creagh in JAKARTA; Writing by Ed Davies; Editing by Sara Webb and Nick Macfie)