Click here for Live: Welsh mine rescue
The man, who has not yet been identified, was apparently just minutes from safety when he was overwhelmed by a tide of water as he tried to flee.
He had followed the same escape route out of the colliery, near Cilybebyll, Pontardawe in the Swansea Valley, as two of his colleagues but failed to make it to the surface.
The discovery heaped agony on relatives desperately waiting for news, who could only wait for the body to be identified.
Chris Margetts, from South Wales Fire and Rescue Service, said the dead miner was found on the "exit side of the body of water" and that it was "quite possible the team has been split".
He added: "The search and rescue mission there continues because there are still air pockets on the other side of that water and there is a blockage down there that we have yet to search.
"The miner that we have found had obviously tried to make it up to the exit where the other two came out."
Superintendent Phil Davies said: "We are not in a current position to recover him from the mine and therefore we don't know the identity of that person.
"This is a dynamic, ongoing search and rescue operation and all emergency services are working hard to get all the miners out of there as soon as possible."
Mr Margetts said it was a "delicate and sensitive" operation that required "slow and steady" work.
"We do not want to make the situation or the environment any worse," he said. "We need to make sure that what we do is structurally safe.
"We have got all the special resources we need. Everyone is working very hard, we just need a bit of luck."
Neath MP and former Labour cabinet minister Peter Hain said he had spoken with family members, many of whom were in tears.
"They have gone through a small hell," he said. "What has made it worse is that the miner has been found dead but they don't know who it is.
"You can imagine what they are going through. It is almost worse than not knowing."
Rescuers were last night called to the mine, where the four men had been trapped 90m below ground since yesterday morning, but had to abandon their efforts after about 30 metres.
There has not yet been any contact with the miners, named by South Wales Police as Phillip Hill, 45, the mine owner from Neath, Charles Bresnan, 62, David Powell, 50, and Garry Jenkins, 39, all from the Swansea Valley.
Gary Evans of the South and Mid Wales Cave Rescue Team said: "We brought in some divers to see whether it was possible to go through and speed things up.
"They went into the water to see whether any progress could be made that way, and they went about 20 to 30 metres, but they weren't able to go any further."
They had hoped the divers could assess the situation before all the water had been pumped out, but debris had made the water murky, Mr Evans explained.
He confirmed that despite the lack of contact with the men, they remained "very hopeful".
It is believed the miners would have fled to an air pocket to await rescue.
Police said emergency services were continuing a "multi-agency rescue operation", while the men's families were being supported by family liaison officers.
An expert listening device, which can detect movement deep underground, is among the specialist equipment that has been drafted in as part of the efforts.
Three men escaped, one of whom was last night critically ill in hospital. Two others who were with him were unharmed and are aiding the rescue operation.
The alarm was raised at the pit at around 9.20am yesterday.
A retaining wall holding back a body of water underground failed, flooding a tunnel that the seven miners were in.
Mr Margetts said last night: "What we have determined is the miners are located approximately 90 metres underground.
"They are down a 250 metre main route into the mine. There are numerous little tunnels and old workings which all potentially have air pockets in.
"They are experienced miners, they know the layout of the mine, they would know where to go in this situation."
He said they were pumping it out and, once they were in a position to search off the main shaft, they would then systematically look through the smaller tunnels and shafts.
"The conditions down there are favourable, it's not raining, there's water at the bottom but the air supply is good."
He added that rescuers were very "hopeful and optimistic" that the miners could be freed successfully.
An emergency centre has been set up within the community hall in the nearby village of Rhos to cater for the families of the miners. The Red Cross delivered a haul of blankets and pillows to the centre last night
Prime Minister David Cameron said: "My thoughts are with those missing and their family and friends at this very difficult time.
"Every support will be given to the emergency services to ensure they continue to do all they can. In due course we must ensure we fully understand and learn from the causes of this accident."
Labour leader Ed Miliband said: "This will be a terrible time of anxiety for their families.
"I know the emergency services are doing everything they can.
"All of us will be watching, waiting and hoping for a successful rescue."
The community where the rescue is being carried out was already reeling after the tragic death of Harry Patterson on Tuesday.
The five-year-old, who lived within walking distance of Cilybebyll in the nearby village of Alltwen, died after apparently releasing the handbrake on the family's Seat car, which was parked in the driveway of his home.
Gwenda Thomas, Labour AM for Neath, spoke of the double tragedy which has hit the small community.
"All those living in the villages are part of the same community and the terrible accident on Tuesday with the little boy and this today will be deeply felt," she said.
"It makes you realise how vulnerable we are."
By Victoria Ward and John Bingham
Trapped miners: one found dead as rescuers continue search for three others trapped in flooded colliery - Telegraph