"Dear compatriots, it is with huge grief in our hearts that we announce to you the death of our dear president," a state TV presenter said, reading an official statement.
Authorities said Karimov, 78, was pronounced dead at 8.55 PM (local time) following days of speculation that authorities were delaying announcing his passing after he reportedly suffered a stroke over the weekend.
The strongman's funeral will be held in his home city of Samarkand tomorrow as the country begins three days of mourning, the statement said, with Uzbekistan now facing the greatest moment of uncertainty of its post-Soviet history.
Officially senate head Nigmatulla Yuldashev should now become acting president until early elections are held.
Karimov's youngest daughter Lola wrote on Facebook that "he has left us...I am struggling for words, I can't believe it myself".
Long lambasted by rights groups as one of the region's most brutal despots who ruthlessly stamped out opposition, Karimov was one of a handful of Soviet strongmen that clung to power after their homelands gained independence from Moscow in 1991.
Russian President Vladimir Putin called Karimov's death "a great loss for the people of Uzbekistan" in a telegram to interim leader Yuldashev, while Prime Minister Dmitry Medvedev is set to jet in for the funeral.
Former Soviet leader Mikhail Gorbachev, who appointed Karimov to head the former Socialist Republic of Uzbekistan in 1989, told Interfax news agency that Karimov was "a competent man with a strong character".
Born on January 30, 1938, Karimov was raised in an orphanage in the ancient city of Samarkand, before studying mechanical engineering and economics and rising up Communist Party ranks.
"Islam Karimov leaves a legacy of a quarter century of ruthless repression," Steve Swerdlow, Central Asia researcher at Human Rights Watch, said.
"Karimov ruled through fear to erect a system synonymous with the worst human rights abuses: torture, disappearances, forced labour, and the systematic crushing of dissent."
Most seriously, the authorities have been accused of killing hundreds of protesters in the eastern city of Andijan in 2005.
In the wake of international criticism over the alleged massacre, which Karimov's regime rebuffed, Tashkent shut down a US military base used to supply operations in neighbouring Afghanistan since 2001.
Despite economic growth figures of some eight percent, critics say that Uzbekistan's economy is in a dire situation with a corrupt elite in control of most of its industry.
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