Ahead of his murder, US special forces attempted to rescue Mr Foley, Mr Sotloff and other hostages in a helicopter-borne raid on a town in Iraq, but the prisoners could not be found.
Asked if Britain will "extricate" the British hostage, Mr Hammond referred to the previous failed attempt to rescue him. He said: "You are aware of course of the rescue attempt that took place some time ago, unfortunately unsuccessfully. You wouldn't expect me to discuss the various options we will be considering, but I can assure you we will look at every possible option to protect this person."
10.00 Barack Obama is due to speak shortly in Talinn, Estonia, where he is meeting with Baltic leaders to discuss the Ukraine crisis. Earlier this morning, Ukraine's president Petro Poroshenko declared a permanent ceasefire had been agreed in that conflict following talks with Vladimir Putin.
However, Mr Obama is expected to comment also on the killing of Steven Sotloff - he has yet to speak about the video.
You can watch the press conference live at the top of this blog.
09.54 Islamic State's seizure of a British hostage does not make airstrikes on the militants more likely, but said that option is not being ruled out, says Philip Hammond.
If we judge that air strikes could be beneficial ... then we will certainly consider them. But we have made no decision to do so at the moment.
09.44 British analysis confirms the Islamic State video of the killing of Steven Sotloff is genuine and features the same militant with an apparently British voice, said Foreign Secretary Philip Hammond.
09.37 The Cobra meeting in London has now finished. Philip Hammond is now speaking to media, and has said there is no change to Britain's overall strategy with regards to Isil following the killing of Steven Sotloff and threat to a British hostage.
He has also confirmed the Telegraph's story last night that the unsuccesful attempt by US forces to free James Foley had also been intended - but failed - to free the British hostage who was threatened on the Sotloff beheading video.
Foreign Secretary Philip Hammond (BBC)
09.35 National Security Council spokeswoman Caitlin Hayden announced the US intelligence community's assessment of the video as authentic in a statement on Wednesday morning.
"The US Intelligence Community has analyzed the recently released video showing US citizen Steven Sotloff and has reached the judgment that it is authentic," said National Security Council spokesperson Caitlin Hayden.
09.20 The video showing the beheading of Steven Sotloff is authentic, the US has said (AP).
08.45 David Cameron is chairing an emergency Cobra meeting this morning with top security officials following the apparent beheading of Steven Sotloff and threat to a British hostage.
Defence Secretary Michael Fallon and former foreign secretary William Hague were seen arriving at Downing Street for the 8:15am (0715 GMT) meeting.
08.25 John Kerry, the US secretary of state, and Chuck Hegel, the US secretary of defence, are among top US officials on their way to the Middle East to build a "global coalition" against Isil, the White House said last night.
No details of the timing or specific destination of the trip have emerged, but this NY Times op-ed written by Mr Kerry offers some insight into the White House's position on tackling Isil in conjunction with its international allies:
With a united response led by the United States and the broadest possible coalition of nations, the cancer of ISIS will not be allowed to spread to other countries. The world can confront this scourge, and ultimately defeat it. ISIS is odious, but not omnipotent. We have proof already in northern Iraq, where United States airstrikes have shifted the momentum of the fight, providing space for Iraqi and Kurdish forces to go on the offensive. With our support, Iraqi leaders are coming together to form a new, inclusive government that is essential to isolating ISIS and securing the support of all of Iraq's communities.
John Kerry on a previous trip to Saudi Arabia
08.00 Australian prime minister Tony Abbott has refused to rule out "boots on the ground" in Iraq, reports Reuters:
Abbott was asked by a journalist whether "boots on the ground" were needed to push back the Islamic State militant group, which on Tuesday released a video purporting to show the beheading of a second American journalist, Steven Sotloff.
"Many countries are talking to one another about what is the best way forward here but plainly ISIL is a threat not just to the people of the Middle East, but to the wider world," he said, using an acronym for the Sunni militant group.
07.20 UN Secretary General Ban Ki-moon said on Wednesday morning the world was outraged at the apparent beheading. Speaking in New Zeland, Mr Ban said:
I strongly condemn all such despicable crimes and I refuse to accept that whole communities can be threatened by atrocities because of who they are or what they believe
07.10 Although it was almost an exact repeat of the James Foley murder, this latest instalment of Islamist barbarity was perhaps even more chilling, writes our Middle East Correspondent Richard Spencer:
One clear difference with the Foley video is particularly bloodthirsty. The act of killing cuts out almost immediately, but the shot of Mr Sotloff's body is shown from much closer up.
This may be a response to theories circulated last week that the body in the first video was not in fact that of Mr Foley's.
The final shot is again a mirror image: this time it is the Briton who, looking terrified, is being held by the neck and threatened with death. His name is given on the screen, and the warning is directed to potential allies of America in its bombing campaign - including, by inference, Britain.
Full article: After James Foley, this video killing by Islamic State butchers was even more bloodthirsty
06.50 Good morning and welcome back to our live coverage of the latest developments following the apparent killing of US journalist Steven Sotloff by Islamic State.
Overnight, US president Barack Obama has ordered more troops to Iraq. Josie Ensor, US correspondent, reports:
President Barack Obama has ordered about 350 more US troops to Baghdad to protect American diplomatic facilities and staff in the Iraqi capital, hours after the beheading of a second US journalist.
The announcement came hours after the so-called "Islamic State" (also known as ISIL) released another video showing a masked militant with a British accent cutting the throat of a US captive.
The Sunni extremist group has declared an Islamic "caliphate" in regions under its control in Iraq and Syria, after it swept through much of the Sunni Arab heartland north of Baghdad and then stormed minority Christian and Yazidi areas.
US freelance journalist Steven Sotloff during a work trip in Manama (EPA)
01:00 Thanks you for following. Join us back here tomorrow for more of the latest
00.00 Sen. Bill Nelson in the US will introduce legislation that would give President Barack Obama congressional authority to bomb Islamic State forces in Syria.
As bipartisan outrage poured in Tuesday after Islamic State of Iraq and Levant extremists claimed the execution of another American journalist, the Florida Democrat because the first lawmaker to offer concrete plans for legislation that would clearly give Obama an OK from Congress to strike at ISIL in Syria.
22.25 The US has released some night vision footage of one of the humanitarian food drops being delivered to the residents of the besieged town of Amerli.
22.05 On August 24, the British ambassador to Washington, Sir Peter Westmacott, said the UK was "very close" to identifying the British-accented killer of James Foley. More than a week later there's been no public update on the hunt for the man nicknamed "Jihadi John".
21.40 The video of Steven Sotloff's apparent murder appears to have been found by a private US intelligence firm before it could be released by the Islamic State.
News of Mr Sotloff's death was broken by the SITE Intelligence group, a private company that monitors jihadist activity and has close ties to the American intelligence community.
The group's analysts found the video on what a spokesman described as "a file-sharing site" and send it out to its subscriber list. SITE's subscribers include government officials, journalists and academics involved in analysing terrorism.
Compare that to the choreographed release of the video showing the murder of James Foley, which was released on Youtube and then pushed out by IS accounts.
21.20 Expect the pressure on Obama to take decisive action against IS to ramp up in the wake of this second killing. Here's Lindsay Graham, a Hawkish Republican senator.
21.05 Beyond its barbarity, what clues can we take from the Sotloff video about when it was shot?
-The jihadist in the video brings up the American bombing of the area around the Mosul Dam, which began on August 16.
-Steven Sotloff's hair is noticeably longer than it was the video showing the death of James Foley. In that video, released August 19, Mr Sotloff's head is shaved bald but in today's video his hair has partially grown back.
-The video opens with a short clip of an statement Obama made on August 20.
So what does that all mean? It appears to show that Mr Sotloff was kept alive for at least several days after Mr Foley was killed and appears to contradict theories that all the hostages were executed together and the vidoes drip fed out.
21.00 President Obama has just boarded Air Force One for his flight to Estonia without commenting on the Sotloff video. The White House has released this statement:
20.43 Here is an audio clip of the purported killer of Steven Sotloff:
20.41 Video of US state department spokeswoman Jen Psaki's statement:
20.32 Peter Foster, The Telegraph's US editor, writes that Barack Obama has so far adopted a hands-off policy in the Middle East, but the killing of a second American hostage may force his hand:
If confirmed, the killing of Steven Sotloff by the Islamic State (Isil) will arouse the righteous anger of the US public and only increase demands for Mr Obama to take a more proactive approach to dealing with the jihadist threat in Iraq and Syria.
Last week, pleading the need for more time to develop a workable plan, Mr Obama admitted that "we don't have a strategy yet" on hitting Isil in Syria. The gaffe prompted derision from his political opponents who said the president was not judicious, as his supporters contend, but weak and indecisive.
However the apparent killing of the two Americans in the most gruesome manner imaginable now plunges this issue right through the psychological defences of a war-weary middle America that has tried to keep the collapse of Iraq at arms-length.
20.07 TIME editor Nancy Gibbs has said in a statement:
Steven was a valued contributor to TIME and other news organisations, and he gave his life so readers would have access to information from some of the most dangerous places in the world. Our thoughts and prayers are with him and his family.
20.05 New York Times reports that Josh Polsky, a university friend of Sotloff's, said:
19.54 A family spokesman says Sotloff's relatives are aware of a new video purporting to show his beheading by Islamic State militants, the AP reports.
In a two-sentence statement, family spokesman Barak Barfi said Sotloff's family "knows of this horrific tragedy and is grieving privately".
19.49 A US official told the Wall Street Journal:
19.43 In the video, the killer states:
So just as your missiles continue to strike our people, our knife will continue to strike the necks of your people.
In the video, Sotloff describes himself as "paying the price" for the US intervention in Iraq with his life.
19.30 Shashank Joshi writes that Islamic State's tactics create fear out of all proportion to its military size:
We might identify three parts to this. First, psychological warfare is a key part of the Islamic State's military strategy. Even where outnumbered, as they were in Mosul in June, the Islamic State's fighters have used their reputation for terror to dissuade Iraqi forces from ever seeking battle. Which poorly paid soldier wishes to risk decapitation, impalement, or amputation for the sake of a distant, crumbling government? Fear is a uniquely effective weapon.
19.28 The National Journal has published a tribute to Sotloff, detailing some of his work as a journalist in the Middle East.
19.08 US state department spokeswoman Jen Psaki says that if the video is genuine, "we are sickened".
18.54 Steven Sotloff's apparent murder at the hands of the Islamic State came in spite of an emotional plea by his mother for the jihadist group's leader to spare his life.
Less than a week ago, Shirley Sotloff posted a video begging for Abu Bakr al-Baghdadi, the self-declared caliph of the IS, to show mercy towards her son.
"My son Steven is in your hands," Mrs Sotloff said in the short video. ""You, the caliph, can grant amnesty. I ask you please to release my child. I ask you to use your authority to spare his life."
18.50 Rob Crilly reports:
18.40 White House spokesman, Josh Earnest, told reporters in a briefing that the video would be analysed very carefully, adding that the administration's thoughts and prayers were with Sotloff's family:
18.37 David Cameron has said: "I've just seen the news. It's an absolutely disgusting and despicable act and I will be making a statement later."
18.31 A masked figure in the video also issued a threat against a British hostage.
18.26 The White House said that it had yet to authenticate the footage, which SITE said showed 31-year-old freelance writer Steven Sotloff on his knees beside an IS fighter with a knife.
Steven Sotloff before his kidnapping
18.25 The video warns governments to back off "this evil alliance of America against the Islamic State".
Sotloff, 31, disappeared while reporting in Syria in August 2013. His apparent kidnap was not widely reported until he appeared on a video released last month by the Isil.
In the footage a masked militant beheads US reporter James Foley then parades Mr Sotloff, warning he will meet the same fate unless US President Barack Obama ends air strikes against the group in Iraq.
18.20 Hello, this is our live coverage of the release by Islamic State of a second video, apparently showing the beheading of American journalist Steve Sotloff
American hostage Steven Sotloff has reportedly been executed by jihadist terrorists. There was no immediate confirmation of the video.
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