Osama bin Laden, the criminal mastermind behind al-Qaida and the world's most sought-after terrorist since the attacks of 11 September 2001, has been killed by a US operation, President Barack Obama has announced.

In an address to the nation, President Obama said Bin Laden was killed in a "targeted operation" in Abbottabad, a highland town north of Islamabad, last night.

The operation started with an intelligence lead last August, and culminated in an operation involving a "small team of Americans". "After a firefight they killed bin Laden."

None of the Americans was killed. Pakistani co-operation "helped to lead us to him" he said.

Osama's body is in possession of the US, according to the first reports from the US television networks.

As the news spread, crowds gathered outside the gates of the White House in Washington DC, singing the national anthem and cheering.

President Obama made the highly unusual Sunday night live statement to announce the news at around 11.30pm eastern time.

Bin Laden's capture comes eight years to the day that President George Bush declared "mission accomplished" in Iraq. As president, Bush declared he wanted bin Laden "dead or alive" – but it is now the unlikely figure of Barack Obama who has been able to announce the final triumph as US commander-in-chief.

This is a turning point in the global "war on terrorism" that has been waged since 9/11 - and the news will reverberate around the world.

The news comes as an unparalleled boost for US foreign policy, the key aim of which since 2001 has been the disarming and dismemberment of al-Qaida, and coincidentally probably ensures the re-election of Obama in 2012.

As a candidate during the 2008 election campaign, Obama repeatedly vowed: "We will kill Osama bin Laden." And so it has proved.

The Obama statement was scheduled originally for 10.30pm, but the need to inform US congressional leaders caused the delay.

In the Pakistani capital, Islamabad, one western diplomat described the news as a "game changer" – not just for al-Qaida, but also for US foreign policy in Pakistan and Afghanistan, a region embroiled in turmoil and violence since 2001.

"I'm overjoyed," said the diplomat. "But what this exactly means is really not clear."

Some analysts fear bin Laden's death could spark a precipitous US withdrawal from the region, with the war against the Taliban in Afghanistan still unresolved.

It will likely also reconfigure relations with Pakistan, where the CIA is engaged in a controversial assassination campaign against senior al-Qaida figures using Predator and Reaper drones.

"He's dead," said an official with Pakistan's Inter-Services Intelligence, declining to give details other than to say that it was "highly sensitive intelligence operation".

The official said he was "not at liberty" to give further details on the killing, including on reports that Pakistani intelligence was involved in the operation. "We'll release more information later this morning," he said.

Abbottabad is about two hours' drive north of Islamabad, in Khyber Pakhtunkhwa province. It is not part of the tribal belt, where the CIA drone strike campaign has been concentrated, but is home to the Pakistan military's main training institution, the Pakistan Military Academy at Kakul.

The fact that bin Laden was killed outside the tribal belt in Pakistan will raise questions about how the six-foot four-inch fugitive, one of the most famous faces in the world, managed to escape justice for so long.

Pakistan's intelligence services have largely co-operated with the US in capturing al-Qaida fugitives - some of the most notorious figures seized since 2001 were caught in Pakistan's cities such as the architect of 9/11, Khalid Sheikh Muhammad.

In recent months US military and intelligence officials have publicly complained that the ISI has been assisting the Haqqani network, an al-Qaida-linked militant network that straddles the Pakistan-Afghanistan border.