The Japanese government is trying to verify the authenticity of the footage.
In the clip, Mr Goto kneels before his captor, who says: “To the Japanese government: You, like your foolish allies in the Satanic coalition, have yet to understand that we, by Allah`s grace, are an Islamic Caliphate with authority and power, an entire army thirsty for your blood.
“Abe, because of your reckless decision to take part in an unwinnable war, this knife will not only slaughter Kenji, but will also carry on and cause carnage wherever your people are found. So let the nightmare for Japan begin.”
No mention was made about the fate of Mu’adh al-Kasasibah, a Jordanian pilot who has been held since his plane crashed last month.
A spokesman for the US National Security Council said: "We have seen the video purporting to show that Japanese citizen Kenji Goto has been murdered by the terrorist group ISIL. We are working to confirm its authenticity. The United States strongly condemns ISIL’s actions and we call for the immediate release of all remaining hostages. We stand in solidarity with our ally Japan."
Isil had threatened to kill both captives unless a would-be suicide bomber being held on death row in Amman was handed over by sunset on Thursday.
The apparent murder of Mr Goto, 47, followed the killing last week of his fellow captive Haruna Yukawa, 42.
Mr Goto is believed to have travelled to Syria to try to persuade Isil to release the man he had befriended on previous visits to the region.
On Thursday, his wife broke her silence to plead for his release.
“I fear that this is the last chance for my husband and we now have only a few hours left to secure his release and the life of Lt. Mu’ath al-Kaseasbeh,” said Rinko Goto. “I beg the Jordanian and Japanese Government to understand that the fates of both men are in their hands.
But as the clock ticked on, past Thursday`s deadline, Japanese officials prepared for the worst.
Fumio Kishida, Foreign Minister , said in Tokyo on Saturday that the situation was unpredictable and that anything could happen, NHK reported.
"Anything could happen," he said. "We can`t predict it at all. While preparing for every situation, I want to make every effort for Mr Goto`s release."
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