Up to 20 members of a militant Islamic guerrilla group were killed yesterday after Filipino troops battled through rugged, landmine-sown terrain to free dozens of hostages from the rebels' mountain-top lair.

The fighting began on Saturday, when government forces backed by artillery, helicopter gunships and naval gunboats launched their assault on the island of Basilan in the southern Philippines to rescue the hostages. The captives, many of them children, had been held for 35 days by the fundamentalist Abu Sayyaf group, who are fighting for an independent Islamic state. The government of the Philippines, a country that is 90 per cent Catholic, believes the Muslim separatist group is sponsored by Osama bin Laden.

About 1,500 soldiers took part in the assault on Basilan, 550 miles south of Manila. The army's commander in the area, General Diomedio Villanueva, said: "We have reached their defence perimeters... There is gunfire on both sides but we are in the periphery. There is no turning back."

But, he added, the main guerrilla camp, where therebels were holding their captives and had built bunkers, was more than two miles away from the army's position. According to military sources, the final advance up Mount Punu Mahadje to the rebel base was hampered by rain and landmines.

The military launched the attack three days after Abu Sayyaf said it had beheaded two of the 29 hostages - both male teachers - and threatened to kill more of their captives, including a Catholic priest.

Army officials said they had intercepted Abu Sayyaf radio transmissions about a rebel threat "to execute two hostages at three o'clock every morning if the rescue operations continue" but they could not say how serious the threat was. In retaliation for the beheadings, a pro-government vigilante group seized a suspected Abu Sayyaf member near the provincial capital, Isabela, on Saturday and also decapitated him, police said.

The teachers were executed after the government rejected several Abu Sayyaf demands, including organising the release of three Islamic militants held in the United States.

These include Ramzi Ahmed Yousef, who was sentenced to life imprisonment plus 240 years for masterminding the 1993 bombing of the World Trade Center in New York. The rebels had also insisted on the release of the blind diabetic Egyptian cleric Sheikh Omar Abdel Rahman, who was also jailedover the New York bombing. "[They] may be out of their minds," President Joseph Estrada said in response to these demands.

The hostages were among more than 70 people seized by the guerrillas from two schools on 20 March. The rest have been released unharmed.

The Philippine navy has deployed gunboats around Basilan to prevent guerrillas onnearby islands from reinforcing their comrades. The army estimates that Abu Sayyaf has about 1,000 members.