Sources said Wani was inside his house when the assassins fired at him. Preliminary reports said Wani belonged to the National Conference, currently the senior ruling party in the state.
No militant group has claimed responsibility for the murder so far.
At least five panchayat members have been killed since the grassroots polls were held in the state in 2011, after a gap of three decades. Sunday's killing is the second of the year.
Rocked by the killings, panches and sarpanches started resigning en masse before Chief Minister Omar Abdullah ordered tighter security in areas where threat was perceived. Abdullah although expressed his helplessness to provide security to each of the 34,000 panchayat members, he asked security agencies to back those who particularly faced threat from the militants.
Opposition parties like the PDP and BJP have slammed the Abdullah government over the latest killing, accusing it of failing to protect the grassroots representatives and protect the democracy from terrorists' assault.