Abu Sayyaf unit commander Tanakalun Lianson was killed on Tuesday after his seven man unit ambushed local security official Mabod Manalupong near the town of Tuburan.
Manalupong was wounded but managed to escape and report the incident to government forces nearby, who then launched a counter-attack.
Abu Sayyaf is blamed for a string of kidnappings and killings of foreign hostages, including two Americans seized in 2001.
The group is also blamed for a deadly ferry fire triggered by a homemade bomb in February 2004 which killed over 100 people.
Both Washington and Manila have linked Abu Sayyaf to the al-Qaida network headed by Usama bin Ladin.