The hour-long battle took place yesterday in Palimbang, a remote town in the south -- home to the predominantly Catholic nation's Muslim minority and the scene of decades of conflict.
The bandits were from Ansar al-Khalifa, a small group that declared its support for Islamic State in a video circulated on the Internet last year, regional military spokesman Major Filemon Tan said.
The military has said that support for Islamic State -- which controls vast swathes of territory in Syria and Iraq -- in the Philippines was limited to local bandits claiming allegiance to the group.
The larger Abu Sayyaf group, a United States-listed terrorist organisation that is holding at least four foreign nationals hostage and has demanded millions of dollars in ransom, has likewise pledged allegiance to IS.
Also Read
Tan told AFP that five black flags similar to those used by Islamic State fighters were recovered from the bandits after the clash.
Criminal gangs operate kidnap for ransom and extortion activities alongside Muslim and communist separatist campaigns in the restive south.
While the relatively new Ansar al-Khalifa had extorted from businessmen and stolen cattle from farmers, it had no proven links with Islamic State -- also known by the acronym ISIS -- national military spokesman Colonel Restituto Padilla said.
Tan said the military was verifying intelligence reports that one of the eight killed was an Indonesian national.
Some three dozen others who involved in the encounter escaped after the fighting, he added.