The elite Rapid Action Battalion (RAB) raided a six- storey building in Mirpur area, where neo-JMB leader Abdullah lived as a tenant with his two wives and two children.
He rain his electrical equipment business in the neighbourhood for 15 years.
Neo-JMB, which is inclined to the Islamic State terrorist group, is one of the most active militant groups in Bangladesh. The government blames the homegrown outfit for a series of deadly attacks, including on atheist writers and independent bloggers over the past two years.
RAB officials said the militants had thrice agreed to surrender during negotiations but they did not eventually.
"Charred remains were scattered inside the apartment... We found seven skulls," RAB chief Benazir Ahmed said. He told reporters the temperature inside the flat was nearly 60C hours after the explosion.
"Unlike other militants who prefer to live a secretive life, Abdullah was much social. He used to say his prayers in mosque and enjoyed World Cup football with neighbours," an area resident told PTI.
But, RAB officials said, intelligence suggested several neo-JMB leaders visited Abdullah's residence for meetings.
The raid came hours after RAB said they arrested two militants from Tangail area near Dhaka. The militants were planning to carry out "subversive activities" using a drone, they added.
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