Philippines President Gloria Arroyo has ordered a halt to a military assault on a stronghold of a Muslim separatist guerrilla group on the southern island of Mindanao, according to a government official.

More than 2,000 soldiers moved in with tanks, artillery and planes against the stronghold of the Moro Islamic Liberation Front (MILF) near the town of Pikit on Tuesday, in spite of a ceasefire agreement.

A military spokesman said seven armed Muslims had been killed and five government soldiers wounded in the fighting. The MILF deny having suffered any casualties.

The BBC's correspondent in Manila, John Mclean, said the fighting threatened to become one of the biggest breakdowns of a ceasefire that has been in effect on and off for five years.

Up to 20,000 villagers have sought shelter from the fighting in schools and other government buildings.

Called off

The Philippines defence minister said on Monday that the attack was planned to flush out a group of kidnappers known as the Pentagon gang. They are regarded by the US as terrorists and are allegedly being sheltered by the MILF.

But the Philippines chief negotiator said on Tuesday that Mrs Arroyo had now called off the operation.

"The Pikit operation is giving us problems. The president has ordered the (military) to stop the fighting," said Jesus Dureza, head of the government panel on seeking peace with the MILF.

MILF spokesman Eid Kabalu, who has denied the insurgents are sheltering Pentagon members or any other criminals, reportedly said his group would not stop fighting until the military withdrew.

"Their proposal is just to stop fighting. The MILF command wants disengagement - they should go back to their original position," Mr Kabalu told The Associated Press news agency.

'Pressure over talks'

Mr Kabalu earlier accused the government of using the military to pressure the MILF into accepting a political package being prepared for forthcoming talks in Malaysia.

MILF guerrillas have been campaigning for independence for the Muslim minority in the south of this mainly Christian country since the 1970s.

Despite a ceasefire declared in 2001 and efforts to develop peace talks, there have been sporadic outbreaks of violence.