The Abu Sayyaf, suspected by intelligence agencies of having links to al-Qaeda, is listed as a terrorist group by the Philippine and US governments.
"It was a slugfest. It was really close-quarter fighting so we couldn't use our artillery"
Major General Benjamin Dolorfino, regional commander
"We launched a decisive law enforcement operation targeting the Abu Sayyaf's main training base on Basilan, but we were met by heavy resistance," Brigadier-General Rustico Guerrero told reporters.
Wednesday's clashes saw Philippine troops suffer one of the biggest single-day military losses against the group in recent years, said Major General Benjamin Dolorfino, the regional military commander.
He told the Associated Press news agency that the final body count for the Abu Sayyaf could he higher as troops continued to scour their camps on Basilan.
"It was a slugfest. It was really close-quarter fighting so we couldn't use our artillery," he said, adding troops were pursuing small pockets of fleeing gunmen.
|More than 400 soldiers were deployed to the Abu Sayyaf encampments [EPA]
Al Jazeera's Marga Ortigas reporting from the southern Philippines said the situation became complicated after nine fighters from the Moro Islamic Liberation Front (MILF), a recognised rebel group, were found dead in the same gun battle.
She said military sources had told her this provided further proof that the MILF has been working alongside with, or at least protecting, the Abu Sayyaf.
The MILF, an armed group that is fighting for an independent Muslim homeland in the south, denied the military's claims saying they had been dragged into the battle.
The movement broke a five-year-old ceasefire in August last year and launched attacks across the southern island of Mindanao, where they have been waging a bloody war since 1978.
Rear Admiral Alexander Pama, a commander on Basilan, said an estimated 40 Abu Sayyaf gunmen were killed in the pre-dawn assault but only about half of the bodies were found at the scene of the conflict.
He said Wednesday's offensive targeted about 60 members of the Abu Sayyaf in the two camps.
"The two sides almost came into hand-to-hand battle," Pama told Reuters.
Troops also found several bombs, booby traps and 15 assault rifles and grenade launchers in the camps, said Pama, and explosives that "were already primed to explode".
"What's more important for us was we've disrupted their crude bomb factory and training base," he added.
The Abu Sayyaf group has been linked to Jemaah Islamiyah, an Indonesian group that aims to create a pan-Islamic state across Southeast Asia.
It has become infamous for a string of high-profile kidnappings and is blamed for the worst attack in the Philippines - the bombing of a ferry in Manila Bay in 2004 in which 100 people were killed.