The MILF warned the government against launching an all-out offensive on Wednesday, saying it would be "the most serious blunder that this sitting regime could commit".

Filipinos will be caught again in the "never-ending vicious cycle of political and economic instability", the Muslim separatist group said in a statement on its website.

The warning came a day after the Philippine military chief vowed to hunt down separatists who attacked two towns in the south, saying the time to give peace a chance was now over.

'All-out war'

In a radio interview on Wednesday, Abdullah Macapaar, an MILF field commander blamed for ordering attacks on the two coastal towns on Monday that left at least 37 mostly civilians dead, said his fighters were running out of patience with the government peace process.

"If the government declares an all-out war, we will also declare an all-out war in Mindanao," he said. "We are ready to kill and be killed. The patience of Muslims has run out."

Macapaar, also known as Bravo, said his group had "nothing to do with" Monday's deadly attacks in Lanao del Norte province.

Since Bravo’s attacks, the government has pulled the agreement off the table entirely.

But Hermogenes Esperon, a peace adviser to the government, said it
was not the end of the peace process.

"There are a few difficulties. Could this be the end of the peace process? No… we have to review the terms and negotiate again."

The MILF leadership has distanced itself from the attacks on the towns and blamed renegade fighters led by Bravo frustrated at delays to finalising a peace agreement with the government.

"This happens when there is so much frustration in the peace process. As a result people become outraged. We are trying our best to restrain our commanders," Al Haj Murad, the leader of the MILF, said.

Bravo and Ameril Umbra Kato, who led the occupation of predominantly Christian villages in the south last week, had a $113,000 arrest bounty placed on them on Wednesday by Ronaldo Puno, the interior secretary.

Deal blocked

The fighting in the south flared again after the country's Supreme Court ruled against a deal to give Muslims there an expanded autonomous region.

The MILF has been waging a 30-year guerrilla campaign for a separate Islamic state in the south of the largely-Roman Catholic Philippines - a conflict that has killed over 120,000 people.

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, 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 in an area that has remained the poorest in the country, was halted amid protests by local Roman Catholic politicians in Mindanao.

The Supreme Court suspended the draft accord, raising new tensions, earlier this month and the situation on the ground has deteriorated rapidly since then.

Hawks on both sides have seized on the stalling of the peace moves to re-ignite fighting that has been mostly dormant since 2003.