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By Patrick Markey

BOGOTA, May 25 (Reuters) - Manuel "Sureshot' Marulanda, the founder and top commander of Colombia's main left-wing insurgency, has died of a heart attack after more than four decades fighting a fierce guerrilla war, his rebel group said.

Marulanda organized the Revolutionary Armed Forces of Colombia, or FARC, as a communist army in 1964. His death is its heaviest setback of the war and could push the already weakened rebels to the negotiating table.

Colombia's military had said on Saturday that intelligence sources showed Marulanda died in late March, and the news was confirmed by rebel commander Timoleon Jimenez in a video played on Venezuelan-based television channel Telesur on Sunday.

"Our maximum leader, Manuel Marulanda Velez, died of a heart attack on March 26... in the arms of his companion," Jimenez said, dressed in combat fatigues and standing before a Colombian flag in an unknown location.

Alfonso Cano, already a member of its seven-man leadership, will replace Marulanda as its chief, the FARC said. Cano, 59, a former student activist, is known as more of a political leader and negotiator than a hardline military strategist.

Born into a peasant family, Marulanda rose from a humble businessman who once sold candy and chopped wood to become the commander of the FARC as it evolved from a ragtag army into Latin America's largest and oldest-surviving insurgency.

Marulanda, whose real name was Pedro Antonio Marin and was nicknamed "Sureshot' by comrades, was one of Colombia's most hunted men.

He was a reclusive figure and was last seen in public more than five years ago, in combat fatigues and with his trademark sweat towel slung over his shoulder.

Under his command, the FARC grew into a 17,000-member force controlling large parts of the country. His rebels carried out massacres in villages and ambushed army patrols, often using home-made landmines and missiles crafted from gas cylinders.

They have turned to kidnapping, extortion and the cocaine trade to finance operations against the military and outlawed paramilitary groups in a vicious conflict in which all sides have committed human rights atrocities.

At least 40,000 people have been killed in the last decade alone.

But violence has eased as President Alvaro Uribe's U.S.-backed security campaign weakened the FARC. Several top bosses were killed over the last year and a female commander deserted this month, saying the rebels were "cracking".

"With his death, a chapter of the FARC has closed," Defense Minister Juan Manuel Santos said on Sunday. "He was someone who has been stuck in the past and always opposed peace."

REBEL SETBACKS

Marulanda's death could fuel more desertions and sharpen divisions inside the FARC leadership, where Cano is seen as more open to peace negotiations than hardline, military-wing leader Jorge Briceno, also known as "Monojojoy".

"He was an authority figure ... what he did was solve the disputes among the younger commanders," Pablo Casas, an analyst at the Security and Democracy think tank in Bogota, said of Maralunda. "He was the one who had the final word."

The FARC's No. 2 commander and key negotiator, Raul Reyes, was killed in a Colombian army operation inside Ecuador in early March. That raid sparked a regional crisis between U.S. ally Colombia and the left-wing governments of neighboring Ecuador and Venezuela.

Karina, the senior rebel who deserted this month, said she had not been in contact with the leadership for two years, underscoring the communications difficulties among remaining commanders hiding out in Colombia's jungles and mountains.

The FARC, which now has around 9,000 fighters, remains a potent subversive force in some rural parts. But the rebels are unpopular, especially in the cities, and Uribe has won broad support for his tough campaign against the rebels.

"Thank the Lord he's been taken away," Bogota car park attendant Luis Ortiz said of Marulanda's death. "He and his cronies did a lot of damage to Colombia."

The FARC still holds scores of hostages, including French-Colombian politician Ingrid Betancourt and three U.S. contract workers, and says it wants to exchange them for jailed guerrilla fighters.

It freed six hostages earlier this year but attempts to reach a deal over more kidnap victims are deadlocked over rebel demands that Uribe demilitarize an area the size of New York City in southern Colombia to start talks.

Prompted by government rewards, Uribe says some commanders are already offering to surrender with hostages, including Betancourt. She has been held in jungle camps since her kidnapping in 2002 while campaigning for the presidency. (Editing by Kieran Murray)

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