Troops in Basilan island province engaged about 70 fighters from the Abu Sayyaf group, notorious for terrorist attacks and ransom kidnappings, in a clash that killed one soldier and an estimated seven militants, said local army commander Col Carlito Galvez.
He said the operation was based on information that the militants were manufacturing bombs to be used in attacks in southern cities at the end of the holy Muslim month of Ramadan.
"We conducted the operation so we can pre-empt them," Galvez said following the fighting.
He said that the main intention was to seize improvised explosives that he said the militants were plotting to use in Basilan and nearby Zamboanga city.
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Government troops were placed on heightened alert, increasing their visibility and inspections of people acting suspiciously, said Defence Secretary Voltaire Gazmin.
Today's fighting came on the heels of a bombing spree that has caused tensions in the southern Philippines, where minority Muslims in the predominantly Roman Catholic nation have been fighting for self-rule for decades. The government last year signed a road map to peace with the main insurgent group.