BEIRUT (AFP) - Al-Qaeda-linked jihadists in Syria have admitted beheading a fellow rebel by mistake after believing him to be an Iraqi Shi'ite fighting alongside regime forces, a watchdog said on Friday.

A video posted on the Internet on Wednesday showed two members of the Islamic State of Iraq and the Levant (ISIL) holding up a bearded man's head before a crowd in Aleppo in northern Syria.

They said he was an Iraqi Shi'ite who had been fighting among the ranks of President Bashar al-Assad's forces.

"Some minutes after the video was posted, the man was identified as Mohammed Marroush, a fighter with rebel group Ahrar al-Sham," Syrian Observatory for Human Rights chief Rami Abdel Rahman said.

The Islamist Ahrar al-Sham is an ISIL ally.

"ISIL later admitted the rebel had been killed by mistake and said it had arrested one of its men, a Tunisian, for decapitating him. He was referred to their Islamic court."

The second man, also a foreign fighter and from the Gulf, has not been detained.

Marroush had been wounded in fighting at a regime military base east of Aleppo, Syria's second city and former commercial hub.

In the battle, rebel and jihadist groups squared up against Syrian soldiers backed by members of Lebanon's Shi'ite Hezbollah movement and Iraqi Shi'ites of the Abu Fadl al-Abbas group.

Marroush was taken to hospital outside Aleppo for treatment, and in his drugged state was heard to repeat the names Ali and Hussein, two venerated Shi'ite imams.

"This was the last thing he had heard from the Shi'ite fighters before being wounded," an Observatory statement said.

"The two ISIL men deduced he was a Shi'ite fighter and cut his head off," it added, calling the decapitation "a war crime".

An ISIL chief, Omar al-Qahtani, said on Twitter that Marroush had thought he had been captured by the enemy and lied, saying he was a Shi'ite.

Extremist Sunnis deem Shi'ites to be apostates.

"He called out the name 'Hussein', and those present in the hospital thought he was a (pro-regime) prisoner," Qahtani said.

"Under questioning, he claimed to be Shi'ite... so the brothers killed him," he said, asking the dead man for forgiveness.

"Mistakes happen on the battlefield all the time," Sheikh Qahtani added.

Extremist Sunni jihadist groups battling regime forces have been accused for months by more mainstream rebel factions of all sorts of abuse, including abductions and beheadings.