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Private Martin Bell died in an explosion after disobeying a direct order and going to the aid of another wounded soldier.
The Ministry of Defence said the 24-year-old from Bradford was killed on Tuesday in Helmand province.
He was serving with 2nd Battalion The Parachute Regiment.
'He knew the risks'
His commanding officer, Lt Col Andrew Harrison, said he "disobeyed a direct order in order to render life-saving first aid".
Pte Bell had ignored his own safety to help a friend "in the most dangerous combat circumstances imaginable".
"He knew the risks all too well, twice in the minutes before his death he had witnessed at first-hand the devastating human impact of IEDs (improvised explosive devices)," he said.
"The term 'hero' is overused in contemporary commentary; take a moment to reflect on Pte Martin Bell.
"For his exceptional valour he paid the ultimate price."
In a statement, his relatives said he was proud to be serving his country with the Parachute Regiment, having joined up after three years as a Police Community Support Officer with West Yorkshire Police.
"He had a wicked and infectious sense of humour that would have served him well in difficult times," they said.
"He made us all very proud and he will leave behind a hole in all of our hearts that will never be replaced.
"He was our best friend too. We are a very close-knit family and although we are grieving for his loss, we hope that all the other soldiers keep safe."
Pte Bell leaves behind his parents, Simon and Elaine, and brothers Oliver and Philip.
The MoD said Pte Bell had been deployed to Afghanistan on 14 October and had been due to come home for rest on 14 February.
It said that at the time of his death he and his unit had been engaged in action against insurgents who intimidated the local population and attacked the Afghan National Army.
In tributes on the MoD website, colleagues said he was a key member of the platoon who would often put himself in harm's way to help others.
They described him as a "legend", an "awesome bloke" and a "soldier of the highest calibre".
Defence Secretary Liam Fox also paid tribute to Pte Bell and offered his condolences to his family.
"It is clear by his actions and from the high praise of his colleagues in 2nd Battalion The Parachute Regiment that he was an immensely brave, selfless and highly professional soldier," he said.
Of the 350 UK military fatalities since 2001, 309 were due to hostile action.
The remaining 41 died as a result of accidents, illness, or non-combat injuries, or have not yet officially been assigned a cause of death.
