The Philippine military has killed 25 Islamist guerillas as it presses on with an offensive despite the loss of 18 soldiers, authorities said Tuesday.

Defence Secretary Voltaire Gazmin gave the toll of Abu Sayyaf fighters as fighting in the southern island of Basilan continued.

"Twenty-five are dead as of now," he told reporters, adding that a senior Abu Sayyaf leader called Furuji Indama was among them.

"This is of major importance because the threat will now lessen because we have gotten one of their heads," he told reporters.

The operation against the Abu Sayyaf suffered a major setback with the death of the 18 soldiers in an initial clash on Saturday.

However the government has said the drive will continue, adding it has already achieved a major objective with the killing of a Moroccan bomb-making instructor, Mohammad Khattab. He was said to be trying to link the Abu Sayyaf up with international groups.

Gazmin said he could not confirm if Khattab was affiliated with the Islamic State group that has captured large swathes of Syria and Iraq.

Military spokesman Brigadier General Restituto Padilla said that "even if we have suffered serious wounds, we are even more determined, so this fight will go on".

The Abu Sayyaf, a small group of militants notorious for kidnapping foreigners and demanding huge ransoms, was established in the early 1990s with seed money from Osama bin Laden's Al Qaeda network.

Based in the southern islands of Basilan and Jolo, it has been blamed for the country's worst terror attacks, including a 2004 Manila Bay ferry bombing that claimed 116 lives.

Its leaders have in recent years pledged allegiance to Islamic State.

However Padilla said that "up to now, we are still looking for firm proof directly linking them to a larger group" like Islamic State.

Local government offices said more than 500 villagers had fled the fighting in the heavily-forested island.