MANILA (Reuters) - The Philippines has raised its terror alert to its highest level after police said they had discovered a plot by Islamic State-linked militants to attack a park, following a foiled bombing near the U.S. embassy this week.

Ronald dela Rosa, the national police chief, said the plot was revealed by two men arrested over the planting of a bomb near the embassy in Manila on Monday.

“These men planned to detonate a bomb in a public park, but it failed, then they planted another improvised explosive device near the U.S. embassy,” dela Rosa told a news conference, standing beside two men in yellow prisons shirts.

Three other men belonging to a southern Philippine Islamist militant group had evaded arrest, he added.

“I am advising the public to be vigilant, to be cautious, but don’t panic. Enjoy your Christmas,” he said, adding that checkpoints would be set around the capital and raids conducted on known “lairs of suspected terror groups”.

A mobile phone wired to an 81-mm mortar bomb was found by a street sweeper near the U.S. embassy early on Monday. Police safely detonated the bomb, but the masterminds had tried to set it off by calling the phone, Dela Rosa said.

Police traced the number to a man in a province north of Manila, then arrested him. A second man who drove a car and placed the explosive near the U.S. mission was also arrested.

Philippines President Rodrigo Duterte has been warning that Islamic State fighters could seek to establish a foothold in his country if driven out of Iraq and Syria, warning of “contamination” by extremists.

The southern Philippines has for decades been a hotbed of Muslim militancy, though driven largely by domestic agendas.