ZAMBOANGA: Muslim rebels seized more hostages and traded gunfire with Philippines troops Tuesday, on the second day of a stand-off after mounting a deadly attack on a southern city, officials said.

The rebels had seized 20 hostages at the start of the crisis, but Zamboanga Mayor, Maria Isabelle Climaco Salazar, said they were now holding 170 people in six villages where they are presently hiding.

The confrontation between the government and Moro National Liberation Front (MNLF) gunmen aimed at derailing peace talks.

The initial attack killed four people and left 14 injured, the mayor told reporters Tuesday, reducing the toll from Monday when she said there were six dead and 24 wounded. She gave no explanation for the revision.

“What we are seeing is that they are being used as human shields,” Salazar said in an interview with ABS-CBN television.

“We are working for the release of the hostages and a peaceful resolution of this problem."

Military spokesman Lieutenant-Colonel Ramon Zagala, estimated they were facing about 180 gunmen armed with rifles and mortars, revising down an earlier estimate of 200-300.

He added that about 1,500 elite troops backed by a smaller number of police have blocked off the area to hold the gunmen in place and prevent the arrival of potential rebel reinforcements.

MNLF spokesman Emmanuel Fontanilla told DZMM radio that the rebels were prepared to dig in.

“Our forces will stay where they are. They are on a defensive posture,” he said in an interview.

At one of the villages early Tuesday, soldiers positioned behind an armoured troop transport traded fire with snipers hidden among the houses, said a reporter.

“At the moment, our priority is the safety and security of the hostages and the city,” Zagala said, adding that Tuesday's firefight had died down and there were no further casualties.

“If the time comes to change the mission, we will adjust accordingly,” he said, without elaborating.

The gunmen, followers of MNLF founder Nur Misuari, poured into the fishing villages from the sea on Monday before mounting an assault on Zamboanga, causing panic in the city of nearly one million people.

Misuari, who could not be reached for comment, has declared “independence” for the Muslim southern regions of the mainly Catholic Philippines and called on his followers to besiege government installations.

ABS-CBN footage showed hundreds of residents, including old women and children, spending the night sleeping on the floor of crowded gyms after being forced to flee the fighting.

Negotiators were now trying to convince the gunmen to release the hostages, said Muktar Muarip, a local Muslim community leader in talks with the rebels.

He added that the gunmen had released four women and a child in the early hours of Tuesday, but that they were holding dozens of others inside mosques.

“They forced us to go with them last night, saying they did not know the way,” one of the released women, Merceditas Asinon, told reporters after she was freed unharmed before dawn.

Misuari has criticised a preliminary peace deal signed last year by the government and the Moro Islamic Liberation Front, which split from the MNLF in 1978.

He alleged that the agreement marginalised his group and a peace treaty that it signed in 1996.

MNLF spokesman Fontanilla said that instead of sending the military to fight the gunmen, the government should follow the terms of the 1996 treaty, which require that the rebels' grievances be brought forward to a mediation committee chaired by the Organisation of the Islamic Conference.

The gunmen launched their attack as the government prepared to resume peace talks with the MILF, aimed at ending a 42-year-old rebellion that has claimed 150,000 lives.

It was the second such attack on Zamboanga since 2001, when Misuari's men men also took dozens of hostages and left many more dead.

The hostages were all freed after several days in exchange for the gunmen's safe passage out of the city. Misuari fled to Malaysia, where he was arrested and deported, and was kept in police prisons in Manila until the government dropped all charges against him in 2008.