Updated 1.46pm: Japan's demanded the immediate release of a Japanese hostage after his fellow captive was purportedly killed in a video released by Islamic State.

In the latest recording, the militants say they would release the second Japanese man in exchange of an al Qaeda-linked attempted female suicide bomber held in Jordan.

Japan's Prime Minister Shinzo Abe says it's absurd and unforgivable -

"I feel deep resentment, and resolutely condemn these attacks. I would like to again strongly call for no harm to come to Kenji Goto, and for his immediate release."

Security expert Will Geddes says it's a change of tactics by the terrorists.

"To actually move and progress from what has generally been an untenable ransom demand, to move to a prisoner swap is an interesting development."

One of the two Japanese hostages being held by Islamic State militants has apparently been executed.

A video posted online shows what's believed to be the body of Haruna Yakawa, with his head cut off.

Sky's Lisa Holland has more.

"The Japanese broadcaster NHK says the Government is investigating reports of a video, supposedly of one of the hostages, Kenji Goto, saying that one of his fellow hostages, Haruna Yakawa has been executed."

"The context of what they (the Japanese Government) say suggest that they are looking at the fact that one of those hostages has been killed. Within the last few minutes Japanese PM Shinzo Abe has said the government will spare no effort in securing the release of the remaining captive. He says we will not give in to terrorism and this is an outrageous and unacceptable act."

Haruna Yakawa was being held for a $200 million US ransom by Islamic State militants.