Two civilians were also injured by stray bullets during the gunfight.

Following the attack, the army on Friday closed parts of the highway linking Davao and Cotabato cities because MILF fighters were occupying some of the bridges.

Gloria Macapagal Arroyo, the Philippine president, on Thursday scrapped the deal after Christians and politicians in Mindanao objected to what they saw as an unconstitutional move to create an independent Muslim state.

Manhunt

Police special forces with shoot-to-kill orders immediately launched a manhunt for MILF fighters after the deal was called off.

The rebel group rejected government demands for the surrender of two renegade commanders, Ameril Umbra Kato and Abdullah Macapaar, also known as Bravo.

Both have a $113,000 arrest bounty placed on them for recent attacks on civilians.

On Friday, Eid Kabalu, a rebel spokesman, said that "fighting continued today with the military using air and ground assets, apparently to get Commander Kato".

Kato is said to have launched a series of attacks on villages and towns two weeks ago that killed scores and displaced thousands of people.

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.

Escalating violence

The size of a Muslim homeland is at the centre of the stalled peace process [EPA]
Fighting in the south flared again after the country's Supreme Court ruled against a deal to give Muslims there an expanded autonomous region, under a peace agreement known as the Memorandum of Agreement on Ancestral Domain.

Meanwhile, local political leaders fearing escalating violence have begun arming civilians to protect themselves against rebel attacks, according to international human rights body.

Ayesha Alonto-Datu Ramos, an expert on the Mindanao region, said some local leaders and politicians were profiting from the conflict.

She said: "Whoever these people that are benefiting from the war in Mindanao, [they] pre-empted whatever good faith the government and the MILF may have had by the onslaught of this violence that they have had, and also by ... ugly prejudicial statements and actions coming from the non-Muslims of the area, who are scared of losing whatever stakehold they might have in the Bangsamoro area."

Amnesty International said on Friday the rebels "should be held to account" for serious violations of international law.

It also warned that the deployment of civilian militias on the government side "can set off a chain of reprisals and only increase the danger facing civilians".

The Philippine military has a decades-old policy of arming civilians to reinforce security forces and protect local communities.