The decapitated head was kept on the wall of a roadside religious structure in Bottuguda area of the town. Shocked residents informed police after spotting the head.
Police identified the man as 25-year-old P. Ramesh and launched a hunt for the torso. Sniffer dogs were also pressed into service to identify the killers.
Ramesh, a tractor driver, was brutally murdered by unidentified persons after he left his home on Sunday night to buy medicines.
A police officer said they were probing the case from all angles. The owner of the tractor was also being questioned.
This is the second murder in the town in less than a week.
B. Srinivas, husband of Nalgonda municipal chairperson B. Lakshmi, was murdered with boulders by few people during a quarrel on the night of January 24.
Police have arrested eight persons in connection with the murder.