At least 30 people were killed in heavy fighting between police and Muslim rebels in the Philippines, military and local officials say, threatening a year-old peace agreement and shattering a ceasefire that held for three years.

The Moro Islamic Liberation Front (MILF), the largest rebel group in the south of the Philippines, accepted an autonomy offer in March 2014 from the government, ending 45 years of conflict in which 120,000 people were killed and 2 million displaced.

Under the deal, brokered by Malaysia, the Moro rebels were to surrender their weapons and disband after the government had set up a new autonomous government in the south and granted the Muslim minority wider economic and political power.

But yesterday's clashes, which lasted nearly 12 hours near Mamasapano town, Maguindanao, are likely to be a major setback in the implementation of the deal as Philippine Congress deliberates a new law on Muslim autonomy.

Army sources said police had entered a Muslim community where MILF and its rival faction, Bangsamoro Islamic Freedom Fighters, are believed to be operating. The Philippine National Police did not give any statement.

Zacaria Guma, a MILF commander, said in a statement that the police did not co-ordinate with a joint government and rebel ceasefire panel.

Police had wanted to arrest Zulkifli bin Hir, a Malaysian bomb expert who has a US$5 million bounty on his head from the US State Department, an army spokesman said.

Local officials in Mamasapano said 27 police officers and five rebels were killed. Seven more police officers were unaccounted for and a further eight captured by Muslim rebels.

The death toll could reach 50 people, most of them from the police, the army sources said. Colonel Restituto Padilla said no army unit was involved but they were helping recover police casualties in the area. Nine had been retrieved.

Government and rebel peace panels are now holding informal talks to defuse tension and prevent the incident from escalating and spilling out and threaten the entire peace process.

The last time the MILF clashed with security force was in November 2011 when troops raided a supposed Islamist militants lair. The peace talks with MILF nearly collapsed then.