Battles between Philippines security forces and rogue Muslim rebels seeking to declare an independent state escalated in a southern Philippine city on Thursday and spread to a second Basilan island, officials said.
Three soldiers were killed and nine wounded in the Basilan battle, he added.
U.S.-trained commandos exchanged gunfire with a breakaway faction of the Moro National Liberation Front (MNLF) holding dozens of hostages in Zamboanga City, on the southernmost island of Mindanao, army spokesman Domingo Tutaan said.
The violence illustrates the security challenge potential investors face in the impoverished south of the majority Roman Catholic country despite a strong nationwide economic performance in the second quarter.
It also raises questions about the strength of a peace deal agreed last October with a larger Muslim rebel group, the Moro Islamic Liberation Front, to end four decades of conflict that killed 120,000 people and displaced two million in the resource-rich region.
The Muslim Moro make up the largest non-Christian group in the Philippines, at around 10 percent of a total 97 million Filipinos.
Many houses were on fire on Thursday as soldiers retook a district that rebels occupied for three days, a Reuters witness said. Loud explosions and sporadic gunfire were heard as rebels shelled government positions.
Troops also made house-to-house searches after expelling rebels for possible booby-traps, moving cautiously to avoid sniper fire. Officials said security forces suffered no casualties. They did not know about rebel casualties.
Zamboanga Mayor Isabelle Climaco-Salazar said she had opened a communication line with MNLF founder and breakaway faction leader Nur Misuari, appealing to him to free hostages, particularly women and children.
The standoff has paralysed Zamboanga with as many as 170 civilians believed to be trapped, if not physically held hostage.