MANILA Philippine attack aircraft and artillery bombed Muslim rebel positions for a second day on Monday, raising fears of a humanitarian disaster in the south with nearly 130,000 refugees forced to flee.
"We are conducting air strikes, close air support to our ground forces. Our forces are inching in towards the different barangays (villages) with the objective of clearing them," said Lieutenant General Cardozo Luna, deputy military chief.
"Of course we use big weapons like artillery."
The military insisted the clashes would not spread but members of the Moro Islamic Liberation Front (MILF) attacked a town on the island of Basilan, around 200 km (125 miles) southwest of where the main fighting was taking place, and disrupted voting in local elections there.
The separatist MILF had called for elections in the six-province Autonomous Region in Muslim Mindanao (ARMM) to be cancelled because they want a new Muslim homeland with more political powers established as part of a peace deal.
Seven rebels, three soldiers and three civilians were killed in the battle for 15 villages in North Cotabato province, the military said. The MILF said four of its members had been killed and three wounded.
Manila, smarting from accusations it had abandoned majority Catholics, has vowed to flush hundreds of MILF rebels out of the area. The military said two villages were now clear of rebels.
On Basilan, three people, including one soldier and two civilians, were killed after around 300 MILF guerrillas attacked the centre of the town and disrupted polling.
"It was a surprise attack and the area looks like a ghost town now," said Mayor Tong Istarol.
Nearly 130,000 people have fled their homes in North Cotabato including many from nearby Muslim areas. More than half were crammed into schools and halls while others stayed with relatives or were forced to make their own shelter using plastic sheets.
Church leaders and lawmakers appealed for a halt to fighting and warned of a humanitarian crisis.
"The imminent refugee crisis is an unacceptable cost of the government's mismanagement of the peace process," said Risa Hontiveros, deputy minority leader of the lower house.
An agreement on the size of a Muslim homeland and a future government's powers, including rights over exploring and developing mineral reserves and oil and gas, was halted last week by the Supreme Court amid protests by Catholic politicians.
Legal experts say the Supreme Court will likely rule the territorial deal unconstitutional and order the MILF and the government back to the drawing board.
The setback has enraged some MILF commanders who want progress after more than a decade of talks.
There are big plantations in North Cotabato but no major industries or mines.
Nonetheless investors, particularly those with mineral projects elsewhere in Mindanao, will be keeping a nervous eye on the violence. Big companies such as Xstrata and Anglo American have interests in the region.
"They could be worried about it spreading, about it becoming just general fighting," said Tom Green of risk consultancy Pacific Strategies and Assessments. "Although I don't think that's going to happen."
Traders in Manila said the elections and fighting were having little impact on sentiment for the peso, bonds and stocks.
Voter turnout was between 70-75 percent in the election for a new governor, vice governor and 24-member legislative assembly.
It was lower than the last ARMM election in 2005, when about 88 percent voted.
The polls closed at 3 pm and results will be known within the next two days.
(Reporting by Manny Mogato; Editing by Carmel Crimmins and Paul Tait)