About 13 villages were still held by the separatists on Tuesday, but Eid Kabalu, a spokesman for them, said they were "repositioning" on Tuesday, but said the pace of the pullout depended on army troops ceasing fire.
"They're repositioning to a place safe and far enough to prevent exchanges of gunfire from both sides," Kabalu told The Associated Press.
The civil defence reported 159,123 people had fled their homes in 56 villages in the province, many of them to evacuation centres.
Lieutenant-General Cardozo Luna, the military vice-chief of staff, said the military operation, involving more than 2,000 troops, was not directed against MILF in general, but a group headed by MILF commander Umbra Kato, who is no longer following the orders of the group's main leadership.
"The MILF rebels have defied their own leadership and have refused to leave the area," he said.
He said they were supposed to have complied with a government deal with the MILF leadership to move out of the disputed areas, but "they just re-positioned and occupied other villages".
Peace plan halted
The violence is the worst seen since the Supreme Court halted plans to establish an extended Muslim homeland in the southern Philippines last week.
|The MILF has been fighting a decades-long war for an Islamic state [EPA]
The agreement on the size of a Muslim homeland and a future government's powers, including rights over exploring and developing mineral reserves, oil and gas, was halted amid protests by Catholic politicians.
The 12,000-strong MILF has been waging a 30-year guerrilla campaign for a separate Islamic state in the south of the largely-Christian Philippines.
The separatists signed a ceasefire with the government in 2003 to open the way for peace talks, and both sides said in July they had completed a draft agreement for recognition of MILF's "ancestral domain" in the south.
However, local officials in Mindanao opposed the agreement and filed a suit with the Supreme Court, leading to a suspension of the draft accord and raising new tensions.
The court has asked the government to submit arguments defending the agreement.