Military officials said five other soldiers were wounded in the nearly two-hour gunbattle that also killed at least two militants in Sulu province's mountainous Patikul town, where the Abu Sayyaf have detained many of their kidnap victims.
The estimated 70 militants were led by Abu Sayyaf commander Radulan Sahiron, a one-armed fighter long wanted by Philippine and US authorities for his role in bombings, kidnappings and other acts, according to regional military commander Maj. Filemon Tan and police officials.
The tough-talking president has pursued peace talks with two larger Muslim rebel groups, including the Moro National Liberation Front whose fighters have been suspected of providing sanctuary and combat support to the Abu Sayyaf in Sulu in the past.
The military's battle setback came after troops killed at least 21 Abu Sayyaf gunmen, including an influential commander, in the jungles of Patikul on Friday and Saturday in assaults that followed the beheading.
Although the militants have been weakened by years of US military-supported Philippine offensives, they remain a national security concern and have been implicated in the recent kidnappings of Indonesian and Malaysian crewmen of tugboats plying the area around the sea borders of the three countries.