The Philippines has found itself embroiled for a potential territorial dispute with neighbouring Malaysia just as the outlines of a peace deal with Muslim separatists are beginning to emerge.

The Philippines' president, President Benigno Aquino III, has gone on national television demanding that a Muslim clan leader in the southern Philippines to order his followers to withdraw as soon as possible from Malaysian land they claim as their own. Aquino warned of legal action against them and potential trouble.

Speaking on national television, Aquino told the leader known as Sultan Jamalul Kiram III that his group of 180 followers led by his younger brother and including up to 30 armed men was risking a violent end to a two-week standoff by insisting on holding out. Kiram's sultanate has been claiming the land in a coastal village in Lahad Datu district in Malaysia's eastern Sabah state for nearly a century.

"We have not yet reached the point of no return but we are fast approaching that point," Aquino said, calling the action by Kiram's followers a "foolhardy act" that was bound to fail.

Aquino's remarks elevated the Sabah territorial issue, which has been a thorn in Philippine-Malaysian relations for decades, to a Philippine national security concern. The crisis has erupted at a crucial stage of peace negotiations brokered by Malaysia between the Philippine government and the Moro Islamic Liberation Front, the largest Muslim rebel group in the southern Philippines.

Kiram's followers secretly travelled by boat this month to Lahad Datu, where he said many of their Filipino relatives had resettled for years, to fortify his clan's claims on Sabah. It is a resource-rich Malaysian region where many mostly Muslim Filipinos have relocated in search of jobs and opportunities and to escape poverty and the decades-long Muslim rebellion in the southern Philippines.

Malaysian authorities regard Kiram's group as armed intruders and ordered them to immediately leave or face eviction. Malaysian police have surrounded Kiram's followers in Lahad Datu and given them until late Tuesday to leave, suggesting they will otherwise be forcibly removed.

Aquino said Kiram and his followers would be investigated, along with possible collaborators, suggesting the incident may have been an act to undermine the Philippine government. He warned Kiram and his followers of possible legal action if they continued to defy orders to withdraw from Lahad Datu.

"If you choose not to co-operate the full force of the laws of the state will be used to achieve justice for all who have been put in harm's way," Aquino said.

While Philippine and Malaysian top diplomats have agreed to resolve the standoff peacefully, Aquino said his government was braced for any contingencies, adding that navies from both nations took steps to prevent more people from entering Lahad Datu.

The Philippines notified Malaysia over the weekend that it had placed a navy ship with social and medical workers off Lahad Datu while talks to persuade the Filipinos to return home continued.

Kiram's younger brother, Agbimuddin Kiram, who is considered a crown prince in their sultanate, said he and his followers would not leave. The village had been surrounded by Malaysian police and abandoned by long-time Filipino residents who feared getting caught in a crossfire, he said.

"We're not invading this place because it is ours," Agbimuddin Kiram said by mobile phone from Lahad Datu, adding that he and his group were fast running out of food. "Sabah is owned by the sultan of Sulu, so what crime are we violating?"

Sulu, a predominantly Muslim province in the southern Philippines where the Kiram clan is based, is about half a day away by boat from Sabah.

"If the Malaysian police come with guns, we have to defend ourselves," Kiram said.

Despite their seemingly futile stunt the Kirams have succeeded in refocusing attention to the territorial issue that past Philippine presidents have relegated to the backburner in favor of cultivating ties with affluent Malaysia, as the Philippines attended to more pressing concerns such as the Muslim insurgency.

Aquino said he had ordered an extensive study into the Sulu sultanate's claim to Sabah but warned that the effort could run into a dilemma over the convoluted history of the dispute. He cited at least five clan leaders who claim to be the heirs of the original Filipino sultan who was supposed to have had control over the vast territory. Documents dated to the late 1800s, he said.