The militants kidnapped the traders on Wednesday and took them to the dense Boni forest area in Lamu county. The militants released three of them who were Muslims and beheaded a Christian.
Local police said the body of the victim was found in the forest yesterday. According to police, the survivors said the attackers were well armed and had identified themselves as Shebab members on a mission to fight security forces inside Kenya.
Lamu, a UNESCO World Heritage site, has been hit by several attacks since mid-June which have left scores dead.
The attacks have fuelled divisions on the coast, a region where radical Islam, ethnic tensions and land disputes are an explosive cocktail.