The army has deployed attack helicopters and special forces to drive rebels of the Islamic State-linked Maute group out of Marawi City and Malaysians and Indonesians and other foreigners were among six guerrillas killed on Thursday.
The announcement elevates the threat of what experts and the military say are moves by Islamic State to exploit the poverty and lawlessness of predominantly Muslim Mindanao island to establish a base for extremists from Southeast Asia and beyond.
"What's happening in Mindanao is no longer a rebellion of Filipino citizens," Solicitor General Jose Calida told a news conference.
What it worrisome is that the ISIS has radicalised a number of Filipino Muslim youth
Solicitor General Jose Calida
"It has transmogrified into invasion by foreign terrorists, who heeded the call of the ISIS to go to the Philippines if they find difficulty in going to Iraq and Syria," he said, using the acronym for Islamic State.
President Rodrigo Duterte has delivered on his threat to impose martial law on Mindanao, the country's second-largest island, to stop the spread of radical Islam. He has been pleading with Mindanao governors and religious leaders to work with the government to keep extremists at bay.
Duterte recently warned that Islamic State fighters driven from Iraq and Syria would end up in the southern Philippines and his country was at risk of "contamination".
Police and military in Philippines are struggling to regain control of Mawari from ISIS jihadis
The Maute, which has pledged allegiance to Islamic State, held its positions on bridges and buildings on Friday as ground troops launched early morning offensives to flush out the remaining gunmen after unrest that has killed 11 soldiers and 31 militants.
The White House on Thursday said it backed the Philippines in its fight against "cowardly terrorists".
Few of Marawi's 200,000 inhabitants remained after militants ran amok, seizing and torching schools, a college and a hospital. They freed more than 100 prisoners and took a priest and churchgoers hostage at the city's cathedral.
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President Rodrigo Duterte has delivered on his threat to impose martial law on Mindanao
'NOT REAL MUSLIMS'
Convoys of vehicles packed with evacuees and protected by heavily armed soldiers streamed into nearby Iligan City. One Christian resident, Mark Angelou Siega, described how students fled amid fears rebels would take over their university campus.
"We were preparing for exams and we could hear the gunfire and bombs," he told Reuters.
"We were so scared and so were our Muslim brothers and sisters. We were sure they would get to us.
"These terrorists are not real Muslims."
The Maute group and Islamic State had a dream to create their own 'ISIS province'
Marawi villagers take shelter at a school following reports of fresh clashes
Solicitor general Calida said the Maute group and Islamic State had a dream to create their own "ISIS province" in Mindanao and the government was not the only target of their aggression.
"People they consider as infidels, whether Christians or Muslims, are also targets," he said. "What it worrisome is that the ISIS has radicalised a number of Filipino Muslim youth."
Duterte has dealt with separatist unrest during his 22 years as mayor of Davao, Mindanao's biggest city, but the rise of the Maute and signs that it has ties to another network, the Abu Sayyaf, present one of the biggest challenges of a presidency won on promises to restore law and order.
Philippine intelligence indicates the two groups from different parts of Mindanao are connected, through Isnilon Hapilon, a leader of a radical faction of Abu Sayyaf.
Unseen photos of President of the Philippines, Rodrigo Duterte
Thu, December 29, 2016
The controversial presidency of the Philippines' leader Rodrigo Duterte.
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He was the target of Tuesday's failed raid by troops on Maute hideout in Marawi and Calida said Islamic State had declared Hapilon its "emir" in the Philippines.
Abu Sayyaf is notorious for piracy and kidnappings and beheading captives, among them Westerners. Though less known, the Maute group has proven itself a fierce battlefield opponent for the military with its ability to sustain days of air and artillery bombardments and regroup after incurring heavy losses.
Duterte started warning of a spread of radicalism last year after a bombing in Davao City in September killed 14 people and wounded dozens. The Maute was also blamed for a failed bombing near the U.S. embassy in Manila in November.