The raid took place on his jungle camp along the Guaviare River near the border with Venezuela.
Medina was one of 50 commanders of the Revolutionary Armed Forces of Colombia, or Farc, indicted by the US in March 2006 for allegedly running the country's largest cocaine-smuggling organisation.
He is the first on the list to be hunted down since the US government announced the indictment and a total of $77.5m in rewards for their capture.
Biggest blow
"Without a doubt this is the biggest blow ever to the logistical capacity of the FARC," Santos said.
He said insurgents removed Medina's cadaver to make positive identification impossible.
"In many ways he is more important than some of the members of the FARC's secretariat, because he controlled its drug and weapons-smuggling operations and had extensive contacts with the criminal underworld," Santos said.
War-tax architect
Medina, who led a force in eastern Colombia, is widely credited with reinvigorating the Farc over the past decade by collecting a "war tax" on cocaine shipments passing through the extensive, lawless areas it controls.
Although Medina was never believed to be a member of the Farc's secret inner circle of ideologues, he became the first rebel commander indicted by a US federal court on drug-trafficking charges in 2002.
The later, broader indictment alleged that Medina had acquired at least 1,000 Kalashnikov rifles and other weapons in exchange for 1.5 metric tonnes of cocaine.