The group had been demanding a ransom, but the villagers of Ait Koufi in the Kabylie region, traditionally a safe haven for militants, refused to pay and instead urged his captors to release him.

"We hope the kidnappers will learn a lesson, and will no longer attack our people," a villager was quoted as saying by El Watan newspaper.

The standoff began on March 22 when the militants seized Ali Hassani, 83, an entrepreneur well known in the area. Standard practice is for a hostage's family and friends to pay the ransom.

For nearly two decades, Algeria has been in the grip of a conflict between Islamist militants and government forces that at its peak in the 1990s killed about 200,000 people.

The violence has declined and support for the militants - now operating under the Al-Qaeda banner - has dwindled but the insurgents still use intimidation in many rural communities.