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The 30-year-old's death was confirmed by the commissioner of police, General Gert Prinsloo, today.
It is understood Mr Biko died in hospital in Pretoria. The government minister of Justice and Police, James Kruger, stated that Mr Biko had been transferred 740 miles (1,191 km) from Port Elizabeth to Pretoria for medical attention following a seven-day hunger strike.
Mr Biko had been in custody since 18 August when he was arrested and detained under the Terrorism Act. He is the 20th person to die in custody during the past 18 months.
Steve Biko was born in King William's Town in the Eastern Cape of South Africa in 1946.
He became active in the anti-apartheid movement in 1960s when he was studying medicine at the University of Natal.
He initially joined the National Union of South African Students' (NUSAS) but resigned in 1969 because he felt it did not represent the needs of black students.
He set up the South African Students' Organisation (SASO) in 1968 and was elected its first president the following year.
In 1972 Biko was expelled from medical school and began working full-time for the Black Community Programmes (BCP). He also started writing regularly for the SASO newsletter under the pen-name of Frank Talk.
By 1973 his work had come to the attention of the government who, in an attempt to curtail his activities, imposed a banning order on him restricting him to his home town.
But he continued his work with the BCP which succeeded in building a clinic and a crèche in King William's Town.
He was also instrumental in setting up several community groups including the Zimele Trust Fund in 1975, which helped political prisoners and their families, and the Ginsberg Educational Trust, to assist black students.
In January of this year he was made honorary president of the BCP.
An inquest into his death is not to be held for several months, according to the authorities.
Mr Biko leaves a wife and two children.
Steve Biko's death caused outrage in South Africa and almost immediately doubt was cast over the alleged cause of his death.
Newspaper editor Donald Woods, and close friend of Biko's, accused the Minister of Justice and Police James Kruger of being directly responsible for the death.
Two weeks later preliminary results from a post mortem examination revealed Biko had died from severe brain damage.
His funeral was attended by more than 15,000 mourners. Thousands more were barred from going by security forces. Twelve Western countries sent representatives to the service, which was conducted by the Right Reverend Desmond Tutu.
Biko's contribution to the black fight for freedom from apartheid is often placed as second only to that of former President Nelson Mandela.
The inquest into his death in November 1977 cleared the police of any wrong-doing.
But after the election of the ANC Government in 1994, the Truth and Reconciliation Commission, which was set up under Archbishop Desmond Tutu, denied an amnesty to five policemen who admitted being involved in his death, although they have never been prosecuted.
The Commission found that Biko's death was as a direct result of the injuries he sustained in custody.
His life story was dramatised in the film Cry Freedom.
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