Prime Minister Gordon Brown said he was "deeply saddened" that a body believed to be a British hostage has been passed to authorities in Iraq.
A process is now under way to "urgently establish identity", Mr Brown's spokesman said.
Six weeks ago, the Government informed the families of security guards Alan McMenemy and Alec MacLachlan that they were "very likely" to be dead.
The two were captured in Baghdad in 2007 along with fellow security guards Jason Swindlehurst and Jason Creswell, whose bodies were found earlier this year, and the man they were guarding, IT consultant Peter Moore.
A Downing Street spokesman said: "The Prime Minister was deeply saddened that a further body, which the Iraqi authorities believe to be one of the British hostages taken in 2007, has been passed to the British Embassy in Baghdad.
"A process is now under way to urgently establish identity. The Prime Minister is in close touch with the Iraqi prime minister about this case. He will leave no stone unturned in the Government's efforts to secure the release of the remaining hostages. The Prime Minister's thoughts are with their families at this extremely difficult time."
In a statement, Foreign Secretary David Miliband said it was not yet possible to "definitively confirm" either that the body was a hostage or which one it was.
But he said: "My thoughts and those of all of my colleagues in Government are, of course, with the families of the British men kidnapped in Iraq. We are in close touch and informed the families of all five hostages of these developments earlier this afternoon. It is particularly distressing for them again to hear bad news, without final confirmation, that one of their loved ones has died. We are determined to keep this period of uncertainty for the families to a minimum."
Mr Moore is still believed to be alive, Mr Miliband said.
Mr Moore's father Graham, 59, said: "Until we confirm who it is, we're just in suspense. Leicestershire Police rang me today at about 5pm with the statement from the Foreign Office, but we won't find out any more until they identify the body."
