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By Hugh Bronstein

BOGOTA, March 7 (Reuters) - A top commander of Colombia's biggest rebel group was killed by his own bodyguard in the second major blow to the left-wing insurgency's leadership in less than a week, the government said on Friday.

Ivan Rios, the youngest person on the seven-member secretariat of the Revolutionary Armed Forces of Colombia, or FARC, was shot dead in the country's northwestern coffee-producing region this week.

The army initially said Rios, considered key to the FARC's future, had been killed in one of several recent battles with troops in the area.

Defense Minister Juan Manuel Santos later told reporters Rios was assassinated by one of his own fighters. The chief bodyguard to Rios took credit for the killing, chopped off the right hand of his late boss and turned it over as proof, Santos said.

Colombia has increased the rewards it pays to those who help capture or kill guerrillas. Rios had a $2.6 million price on his head.

Last weekend, Colombian forces sparked a regional diplomatic crisis by raiding into Ecuador to kill the No. 2 FARC leader, Raul Reyes.

After days of tension, during which Ecuador and leftist ally Venezuela sent extra troops to their Colombian borders, regional leaders meeting at a summit in the Dominican Republic agreed to end the dispute on Friday.

FARC GOLDEN BOY

The 46-year-old Rios, a protege of aging FARC supreme leader Manuel Marulanda, was in charge of reorganizing operations hit hard by the government's U.S.-backed military offensive.

As the army pushes the insurgents onto the defensive, the government hopes more rank and file FARC members will turn in their bosses for multimillion-dollar rewards.

"This is a severe blow to morale of the FARC, which never lost a top leader before Reyes was killed last weekend," said Pablo Casas at the Bogota think-tank Security & Democracy.

"If the government keeps up the pressure and the FARC keeps losing people like this, it is going to be left brainless."

Rios was part of the group's negotiating team in peace talks that collapsed in 2002. Later that year, conservative President Alvaro Uribe was first elected on promises of crushing the decades-old insurgency.

Uribe, whose father was killed in a botched FARC kidnapping in the 1980s, won a second term in 2006 after cutting crime and invigorating the economy with his tough security policies. He remains highly popular.

The FARC, designated a terrorist group by the United States and European Union, is mainly funded by cocaine trafficking. The rebels hold hundreds of hostages, including three U.S. defense contractors taken in 2003 and French-Colombian politician Ingrid Betancourt, abducted in 2002.

The FARC has released six high-profile kidnap victims so far this year but remains deadlocked with Uribe over terms for swapping more hostages for jailed rebels. (Additional reporting by Luis Jaime Acosta; Editing by Eric Walsh)

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