"At this moment we cannot confirm with 100-per cent certainty that this is true and I don't know if we will be able to confirm that in the coming days, but what we see does not look good, looks horrible," Milanovic told reporters.
The Islamic State group claims to have beheaded Tomislav Salopek, who was abducted last month in Egypt, posting a purported picture of the victim's body on IS-affiliated Twitter accounts.
If confirmed, this would be the first time a Croatian citizen has been murdered by jihadists.
However, Milanovic said his government would not give up as long as there is a hope.
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"We will not stop searching (for Salopek) as long as the slightest hope exists," he said.
The government, he said, was keeping in contact with foreign institutions and leaders to seek their advice.
Croatia is "at the full disposal" of the Salopek family, Milanovic added.
"This is an attempt by some people to destroy our way of life. If that prevails, it will not be good," he added.