Hussain, a senior member of the Pakistan Tehreek-e-Insaf party. The PTI has promised to reduce endemic corruption in the nuclear-armed nation of 180 million people.
The PTI's leader, former international cricket star Imran Khan, immediately blamed the killing on the Muttahida Quami Movement. The MQM has a stranglehold on politics in Pakistan's biggest city, Karachi.
"Her death has sent shockwaves across the rank and file of the party," Khan said in a statement.
Police said that two gunmen shot Hussain dead outside her home in an upscale neighborhood of Karachi, he said. "I hold (MQM leader) Altaf Hussain directly responsible for the murder as he openly threatened PTI workers and leaders through public broadcasts," he added in a tweet.
"I also hold the British government responsible as I had warned them about British citizen Altaf Hussain after his open threats."
MQM leader Hussain is wanted on murder charges in Pakistan and leads his party remotely from exile in England. His party is designated a terrorist organization by Canada, a charge it strongly denies.
In recent days he gave a speech which many Pakistanis felt was an incitement to attack political rivals. The British police have been flooded with complaints demanding an investigation.
The MQM leader insisted his words were taken out of context. MQM leaders held a press conference within hours of Hussain's death to disclaim responsibility and demand a retraction from Khan.
Khan's election campaign electrified many Pakistanis, pushing the PTI from a marginal party with no seats in the legislature to become Pakistan's third largest party.
National polls held a week ago gave the MQM 18 out of 19 national assembly seats in its power base in Karachi. Repolling is due to be held Sunday in the final constituency, thought to be a stronghold of PTI, after many polling stations failed to open on election day.
The steamy port city of Karachi is Pakistan's financial heart and home to 18 million people. It typically sees about a dozen murders a day, a deadly combination of political killings, attacks by Taliban and sectarian militant groups, and street crime.
Around 150 people were killed in the run-up to national elections held last week, which handed a landslide victory to opposition leader Nawaz Sharif and his PML-N party.
It marked the first time an elected government replaced another one in a nation that has been run by military leaders for more than half its history.
Results from a handful of constituencies are still awaited amid accusations of vote-rigging. The shooting came hours ahead of repolling in a key area beset by allegations of voting fraud.