Jume Tahir, 74, was reportedly stabbed after he led early morning prayers at the Id Kah mosque on Wednesday.
His killing came two days after dozens of people were reportedly killed or injured in clashes with police in Yarkant county, in the same prefecture.
The reasons for his death remain unclear.
But the BBC's Damian Grammaticas in Beijing says Mr Tahir, who was from Xinjiang's mainly Muslim Uighur ethnic minority, was a vocal and public supporter of Chinese policies in the region.
Radio Free Asia quoted an unnamed shopowner near Id Kah as saying he saw a body lying in a pool of blood front of the mosque in the morning and police clearing a huge crowd that had gathered. He was told the body was that of Mr Tahir.
A hasty burial was conducted by the late afternoon and the funeral procession was heavily guarded by military and police, according to The Los Angeles Times .
Shortly after his death, police sealed off roads in and out of Kashgar and cut internet and text messaging links to other parts of China. Those restrictions have since been lifted.
Mr Tahir was appointed imam of the 600-year-old mosque by China's ruling Communist Party.
Some say he was deeply unpopular among many Uighurs who disliked the fact that he praised Communist Party policies while preaching in his mosque.
He had also echoed the official government line that blamed the rising level of violence in Xinjiang on Uighur separatists and extremists, says our correspondent.
On Monday, a knife-wielding gang attacked a police station and government offices triggering clashes that killed "dozens" of Uighur and Han Chinese civilians, according to state media outlet Xinhua.
But activists disputed this account and said that local Uighurs were protesting against a Chinese crackdown on the observance of Ramadan, which ended on Monday.
Reports surfaced earlier this month that some government departments in Xinjiang were banning Muslim staff from fasting during Ramadan, and several university students told the BBC that they were being forced to have meals with professors.
There has been an upsurge in Xinjiang-linked violence that authorities have attributed to Uighur separatists.
In May at least 31 people were killed when two cars crashed through an Urumqi market and explosives were thrown. In March, a mass stabbing at Kunming railway station killed 29 people.
In response Chinese authorities have launched a year-long security campaign which includes increased police and troop presence in key cities and towns in Xinjiang. Scores of people have been arrested, and some sentenced to lengthy jail terms or death.
The imam of China's largest mosque - in the city of Kashgar in Xinjiang - has been killed in what appears to be a targeted assassination.