He served as defence minister in the Taliban government before its overthrow in 2001 and as a prominent military commander afterwards.
First arrested in 2007, he was being held in prison in Karachi.
The Taliban said Mullah Obaidullah’s family had been told recently by the Pakistani authorities that he died of a heart-related illness in 2010.
The Taliban is thought to have previously insisted on his release as a pre-condition for any talks with the Afghan government.
Mullah Obaidullah is believed to be one of the highest ranking leaders in the Taliban – after its supreme leader, Mullah Omar.
First captured in the west of the Pakistani province of Balochistan in 2007, he was said to have been released under mysterious circumstances.
He was then rearrested by the Pakistani authorities – under US pressure – in 2008.
Since then Mullah Obaidullah was being held in jail in Karachi, although Pakistani authorities officially refused to comment on his whereabouts.
The Taliban said in a statement posted on their website that their leader’s relatives had learned of his death a few days ago.
They are now demanding an inquiry into his death while in custody. The statement said that the family believe he may have been tortured.
Correspondents say that Mullah Obaidullah’s name was among those suggested earlier this year as possible representatives for potential peace talks with the Taliban