Local Filipino officials said as many as 27 police personnel and five rebels were killed during the 12-hour battle on Sunday. Government and rebel intermediaries later held talks to prevent a further escalation.

The reported toll would make it the largest single-day combat loss for Philippines forces in many years.

The Philippine army said the police commandos had wanted to arrest Zulkifli bin Hir, a suspected Malaysian bomb-making expert wanted by the US on a $5 million bounty (4.5 million euros).

Also known as Marwan, he is believed to have been hiding in the country's south since 2003.

A local mayor, Tahirudin Benzar Ampatuan, said police entered the village of Tukanalipao at dawn on Sunday to capture the bombing suspect but ended up "encountering" members of the Moro Islamic Liberation Front (MILF).

Colonel Restituto Padilla, a spokesman for the armed forces said, however that the rebels were believed to be members of the Bangsamoro Islamic Freedom Fighters, a breakaway of MILF.

Peace deal rattled

Sunday's incident rattled a peace agreement reached last March between the Moro rebels and Philippine government aimed at ending 45 years of conflict.

That deal handed minority Muslims wider powers on the large southern island of Mindanao while requiring rebels to surrender weapons. The rest of the Philippines is predominantly Catholic.

Failure to communicate?

A MILF commander, Zacaria Guma, accused police of failing to coordinate with a joint government and rebel ceasefire panel before searching the village, which lies in the Mamasapano town area.

Local officials said seven more police officers were unaccounted for and a further eight were captured by rebels.

The army said it had not been involved in the search for the suspect but were helping to recover police casualties.

The decades-long conflict in the southern Philippines has claimed 120,000 lives and displaced 2 million people.

Aquino visits Zamboanga after bombing

In a parallel development on Sunday, Philippine President Benigno Aquino visited the southern city of Zamboanga where on Friday a car bombing outside a bus terminal killed two people and wounded a further 54 others.

Military spokesman Colonel Haruld Cabunoc said investigators were considering three groups, including the al Qaeda-linked Abu Sayyaf group , as potential perpetrators.

ipj/bw (dpa, AP, Reuters)