Seven Philippine marines were killed and 21 others were wounded Thursday by a rebel group linked to al-Qaeda during an attempted raid of their jungle camp.

The early morning battle was some of the fiercest fighting this year between the Philippine military and Abu Sayyaf militants.

About 30 marines manoeuvred in stormy weather close to the encampment of more than 50 militants in mountainous Patikul township in southern Sulu province, setting off the gunbattle before dawn, regional military spokesman Lt. Col. Randolph Cabangbang said.

It was not immediately clear if there were casualties among the militants, who were led by Radulan Sahiron, a one-armed commander long wanted by U.S. and Philippine authorities for a string of bombings and kidnappings, Cabangbang said.

The marines moved overnight on a mission to capture Sahiron, Abu Sayyaf commander Isnilon Hapilon and allied militants belonging to the Southeast Asian militant network Jemaah Islamiyah. The militants were holed up in one jungle area on Jolo Island, Cabangbang said.

Rewards offered for capture

Washington has offered $1 million for the capture or killing of Sahiron and $5 million each for Hapilon and Malaysian Zulkifli bin Hir, also known as Marwan, a U.S.-trained Malaysian engineer. He has been hiding in Sulu and is one of the highest Jemaah Islamiyah leaders still at large in the region.

"They were able to penetrate the camp but the militants were positioned on higher ground, that's why we had casualties," Cabangbang said.

Despite the large number of military casualties, the militants withdrew into the woods after five hours of fighting and government forces captured their hideout.

The fall of the major Abu Sayyaf stronghold, which is still being searched by troops, was a key victory that came with a steep price, the military said.

"Nothing is free," military spokesman Commodore Miguel Jose Rodriguez said, adding that the marines clashed with veteran jungle-based fighters, who were being pursued by reinforcement troops.

The dead and wounded marines could not be immediately airlifted from the battle zone due to bad weather, Cabangbang said.

Philippine military offensives backed by U.S. training and intelligence have weakened the Abu Sayyaf, which is blacklisted by Washington as a terrorist organization, but it remains a key security threat. The group is notorious for bombings, kidnappings and beheadings over the last two decades. It is believed to be holding a number of hostages, including two Americans, a Malaysian, an Indian and a Japanese treasure hunter in Sulu, a predominantly Muslim province 980 kilometres south of Manila, and nearby Basilan islands.

The government's Anti-Terrorism Council, meanwhile, has designated the national police to take the lead in the country's battle against terrorism, with the military backing it up, according to documents seen by The Associated Press Thursday. The decision, made last month, was unrelated to Thursday's military setback.

Interior Secretary Jesse Robredo, whose department oversees the 120,000-strong police force, said the military would still lead assaults against the Abu Sayyaf in tough areas like Sulu but the police would gradually play a more active operational role in battling terrorism.

Defence Secretary Voltaire Gazmin said the decision will help free up troops so they can eventually switch to their main role of external defence.