Mr. Sotloff, 31, disappeared in Syria in 2013. He appeared at the end of a video last month which showed fellow U.S journalist James Foley being killed.
A militant in the video also threatened to kill a hostage said to be British.
After Mr. Foley’s death, Mr. Sotloff’s mother appealed to IS leader, Abu Bakr al-Baghdadi, to save her son’s life.
White House spokesman, Josh Earnest, said U.S officials were checking the reports.
The U.S has recently carried out dozens of air strikes against IS targets in Iraq.
The BBC reports the apparent beheading is a way for IS to get back at the U.S for its actions.
The video shows a masked figure together with Mr. Sotloff, who is dressed in an orange jumpsuit, the report says.
The masked man described the beheading as retribution for the U.S air strikes.
“I’m back, Obama, and I’m back because of your arrogant foreign policy towards the Islamic State despite our serious warnings,” the man said.
“We take this opportunity to warn those governments that enter this evil alliance of America against the Islamic State to back off and leave our people alone.”
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