Government workers had entered the formerly rebel-held area in the Wadi Barada region near Damascus on Friday to begin restoring water to the capital after weeks of shortages.
"Fierce fighting broke out after midnight between regime forces, fighters from Hezbollah and the rebels, after gunmen killed the negotiator, Ahmed al-Ghadban," said Rami Abdel Rahman of the Syrian Observatory for Human Rights.
Ghadban had been on his way to the Ain al-Fijeh spring with maintenance teams, he told AFP.
The two sides accused each other of killing the retired army officer, who had only assumed his duties to restore the water supply yesterday.
Under the agreement, Ghadban was to oversee teams working to repair the infrastructure that supplies the capital with water in exchange for a cessation of hostilities and the withdrawal of rebel fighters willing to do so.
The official SANA news agency reported on Saturday night that "terrorists opened fire" on Ghadban after he left a meeting with armed groups in the village of Ain al-Fijeh.
In a joint statement, they urged rebel factions not to attend peace talks in the Kazakh capital Astana later this month and called for international observers to monitor the ceasefire.
Fighting has persisted in Wadi Barada since the entry into force on December 30 of the ceasefire brokered by Russia and Turkey.
The violence caused damage to pipes, leaving more than five million people in Damascus without water.
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