Helicopter gunships and fixed-wing aircraft fired rockets and dropped bombs on the base of suspected members of Abu Sayyaf, a senior military general said.
The military said it has launched a new offensive against Abu Sayyaf and Jemaah Islamiyah, an Indonesian-based group, in the southern Philippines.
"We've been tracking these terrorists for months," a spokesman told reporters in Zamboanga City. "The time is now. We've located them and we're going to finish them off."
Heavy fighting broke out after the bombing on the remote island of Jolo in Sulu province. Two soldiers were wounded in the operation, which involved 500 troops.
The leader of Abu Sayyaf, Khaddafy Janjalani, and a number of fighters belonging to Jemaah Islamiyah, another Islamist group, have been seen on Jolo in recent months, military officials have said.
Janjalani's presence on the island has raised concerns that Abu Sayyaf might be planning attacks against Philippine and US troops based there as part of a counterterrorism training operation.
Two suspects in the 2002 bombings on the Indonesian island of Bali are also believed to be hiding on the island.
The two Islamist groups are continuing to plot bomb attacks in southeast Asia, military intelligence authorities have said.
Abu Sayyaf is blamed for the country's worst terrorist attack, the bombing of a ferry near Manila in February 2004 that killed more than 100 people. The group wants a separate state for the minority Muslim population in the Philippines.
Jemaah Islamiah is fighting for an Islamic state that includes Brunei, Indonesia, Malaysia, Singapore, the southern Philippines, and southern Thailand.