The video shows a man standing in a cage and engulfed in flames. Intelligence officials are working to confirm it is genuine.
Jordan vowed "punishment and revenge".
Lt Kasasbeh was captured when his plane came down near Raqqa, Syria, in December on a mission to support the US-led military coalition against IS.
The video posted online on Tuesday was distributed via a Twitter account known as a source for IS propaganda.
The highly produced 22-minute film includes a sequence showing the Jordanian pilot walking at gunpoint amongst rubble apparently caused by coalition air strikes that targeted jihadists.
The BBC's security correspondent, Frank Gardner, says the new and horrific video is aimed at a world already shocked by the calculated cruelty of Islamic State's actions.
Jordanian state TV reports that Lt Kasasbeh, 26, was killed a month ago - since when Jordan has continued attempts to secure his release.
-BBC
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