Police have said at least five gunmen carried out the attack, one of the deadliest single incidents since the insurgency began in 2004.
Muslims make up more than 90 per cent of the two million people in southern provinces of Yala, Pattani, Narathiwat and Songkhla.
Many complain of being treated as second-class citizens in mainly Buddhist Thailand.
The area was a semi-autonomous Islamic Malay sultanate until annexed by Thailand in 1902.
Several violent uprisings have been put down by the army over the century.
The latest uprising flared in January 2004 when fighters raided an army base, killing four soldiers.
Despite martial law imposed in 2004 and thousands of Thai troops in the region, frequent attacks blamed on Muslim fighters have left more than 3,700 people dead.
In March 2009, the government said 4,000 soldiers would be deployed to southern Thailand, supplementing more than 60,000 already stationed there.
Most of the violence in Thailand's south has been blamed by authorities on Muslim armed separatist groups.
The identities of those who attacked the mosque on Monday were not known, Colonel Parinya Chaidilok, a Thai military spokesman, said but he added that they had tried to make it look as if Thai security forces were responsible.
"They are trying to make it look like the attackers are the authorities, because Muslims would apparently not shoot inside a mosque. But it is impossible that it is the work of the military," he said.
Chaidilok said the local hospital was short of blood following a series of attacks in recent days and that military trucks with loudspeakers were urging residents to
"We are calling on all Thais, Buddhist and Muslim alike, to donate your blood for humanitarian reasons because the hospital is now suffering from an acute lack of various groups of blood," the announcements said.
Very rarely does any group claim responsibility for attacks in the area, and the identity and precise goals of the fighters have never been publicly declared.
Earlier on Monday in the same province, nine soldiers were wounded when the truck in which they were travelling was ambushed, the state-run Thai News Agency reported.
The agency said a remote-controlled roadside bomb destroyed the vehicle, and attackers then opened fire on the solders before fleeing.
Last week, two teachers, one eight months pregnant, were killed in Narathiwat province in an attack blamed on separatist fighters.
The attacks on Monday come as Abhisit Vejjajiva, the Thai prime minister held talks with Najib Razak, his Malaysian counterpart, on efforts to halt the insurgency in southern Thailand.
|A roadside bomb was detonated in the same province, wounding nine soldiers [Reuters]
The two discussed measures to bring economic progress to the south, including Malaysia's role of providing scholarships for Thai Muslim students and promoting the development of the education system in Thai provinces bordering northern Malaysia.
"In terms of creating opportunities particularly for young people in the area, I think that Malaysia has very important contributions," Abhisit told reporters after the meeting with Najib in the Malaysian capital, Kuala Lumpur.
In April the Thai government announced it was extending emergency rule for another three months in the region, despite a promise by Abhisit in January to cancel the measure.
A month earlier Abhisit announced that 4,000 more soldiers and other security personnel would be deployed to the region, supplementing more than 60,000, including local part-time forces, already stationed there.