"There is still sporadic fighting in the area. Operations are still going on," national military spokesman Lieutenant Colonel Ramon Zagala said.
The military launched the assault on the strife-torn southern island of Basilan as part of an operation to capture Puruji Indama, an Abu Sayyaf commander notorious for beheading and mutilating victims, Zagala told AFP.
Indama, who has a bounty of USD 74,500 on his head, has also been blamed for holding foreigners for ransom in the southern Philippines over the years.
The military spokeswoman for the south, Captain Rowena Muyuela, said that the number of wounded soldiers had reached 20 with at least two in a serious condition.
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"Based on ground reports our troops managed to neutralise (an) undetermined number of the Abu Sayyaf members," she added.
Indama is a member of Abu Sayyaf, a self-styled Islamic militant group blamed for the worst terror attacks in the country's history including bombings.
It is thought that the hostages have been hidden on the southern Philippine island of Jolo.
The islands of Jolo and Basilan, which are about 70 kilometres apart, are both known strongholds of the group.
But Zagala said the Basilan operation was not linked to the kidnapping in Malaysia.
"This is very specific. It is concentrated on Puruji Indama. He has long been targeted. It is separate from the kidnapping incident. There are other groups who are tasked to do that search," he said.