Security forces clashed yesterday with a Muslim separatist group holding an American national and a Filipino hostage in the southern province of Sulu, officials said. Officials said the clash left a still undetermined number of Abu Sayyaf guerrillas dead in Sulu's Talipao town, where government soldiers were pursuing a band of Abu Sayyaf fighters.

There were casualties on the military side, said Col. Fredesvindo Covarrubias of the military's Southern Command.

Guerrillas are still holding captive Jeffrey Schilling, seized in August while visiting an Abu Sayyaf camp in the largely Muslim province close to Malaysia's eastern border.

The same group is also holding a Taiwanese trader abducted on January 7 in the nearby Tawi-Tawi province and a Filipino diving instructor, the only remaining captive from 21 mostly foreigners guerrillas had seized on April 21 last year in a daring cross-border raid in Sipadan island resort in Borneo.

"Troops are hot on the trail. Government forces are pursuing the rebels in the mountains. This is a continuing military offensive and search and rescue operation to free the hostages," Col. Covarrubias said.

He added that Maj. Gen. Narciso Abaya, commander of the Philippine Army in the south, has ordered an intensified operation against the rebel group.

Col. Covarrubias said villagers in Sulu province have been providing vital information to the military about the Abu Sayyaf rebels in their areas.

"We continue to receive a lot of information from civilians and village officials about the group... their activities and areas where the rebels are harbouring and this is why troops could pinpoint their hide-outs. But they are highly mobile and are moving from one place to another," he noted.

The rebels have demanded $10 million from the U.S. embassy in Manila in exchange for Schilling's release, but officials have rejected this.

Manila ordered a massive military assault in September and rescued dozens of foreign and Filipino hostages and killed and captured hundreds of Abu Sayyaf members.