Croatian Prime Minister Zoran Milanovic told reporters he could not “confirm with 100 percent certainty” that Tomislav Salopek, who worked for French company CGG, had been murdered.
“But what we see does not look good,” he said, adding that his government would not give up searching as long as there was hope.
Salopek was abducted last month west of Cairo. The jihadists had issued a 48-hour deadline that expired on Friday threatening to kill him if Muslim women prisoners were not freed from Egyptian jails.
The authenticity of the picture could not be immediately verified.
Salopek’s abduction and purported killing were unprecedented in Egypt, which is battling an IS insurgency in the eastern Sinai Peninsula.
Although IS’s Egyptian affiliate has killed hundreds of policemen and soldiers since the army overthrew Islamist president Mohamed Morsi in 2013, the country had been spared the gruesome kidnappings and executions of foreigners by the jihadists in Iraq and Syria.
The group has in the past beheaded Bedouin in Sinai it accused of collaborating with the army.
State-run Croatian news agency HINA quoted a foreign ministry source Wednesday as saying it “does not have confirmation that abducted Croatian citizen Tomislav Salopek has been killed”.
The picture was posted on IS-affiliated Twitter accounts with the caption: “Execution of prisoner from Croatia — which has participated in war on Islamic State — after deadline ended.”
Britain condemned the “apparent murder” of Salopek, while France called it a “despicable assassination”.
US National Security Council spokesman Alistair Baskey said Salopek’s killing if confirmed would be a “brutal act.”
“Their atrocities only reinforce our collective resolve to take decisive action against these terrorists,” he told AFP.
Washington is leading an air campaign against IS in Iraq and Syria.