The cleric "was killed at the hands of Syrian authorities," a spokesman for the Kurdish Yakiti party said in a statement received by AFP in Beirut.
But an interior ministry official in Damascus, quoted by Syria's state news agency SANA, said the sheikh was kidnapped and killed by a criminal gang.
"Five people kidnapped Sheikh Khaznawi in Damascus and took him off to Aleppo (to the north) where they killed him," the unnamed official said, without giving a motive. "The gang has been arrested," he said.
An official from the Kurdish Democratic Party in Syria, Nazir Mustapha, told AFP that the cleric was seen at a military hospital in Damascus with "traces of torture" on Khaznawi's body.
The sheikh was widely popular in Syria, and was known for teaching that Islam and democracy are compatible. He was last seen leaving Damascus's Islamic Studies centre, of which he was vice president.
Human rights groups announced the disappearance of the Kurdish cleric, while Syrian authorities denied holding Khaznawi in custody.
His disappearance led some 10,000 Kurds to demonstrate in his hometown of Qamishli in northern Syria on May 21, demanding that authorities release news of the cleric's whereabouts.
Mustapha said the cleric's body was expected to arrive later Wednesday in Qamishli, where he would be buried.
Qamishli was the site of riots in March 2004 that began with stadium fighting between Arab and Kurdish football fans and grew into bloody clashes between Kurdish protestors, Syrian security forces and Arab tribesmen.
Kurdish sources reported that 40 died in the fighting. Syrian authorities said 25 were killed.
Hundreds of Kurds were arrested following the disturbances but Syrian President Bashar al-Assad in March ordered all the prisoners released.
Hassan Saleh, secretary general of the Yakiti party, said earlier this month that the pardon had not been fully carried out, and alleged that more than 100 Kurds remained in jail.
Saleh also said a number of Kurds were arrested anew by Syrian forces in early May.
Syria is home to some 1.5 million Kurds, around nine percent of the population. They are fighting to have their language, culture and political rights recognised.