The army said Abu Sayyaf was holding several tourists who were kidnapped from a resort in September.
Abu Sayyaf is the smallest but also the most radical of Islamic separatist groups in the Philippines, and often carry out kidnappings for ransom.
Philippine army spokesman Maj Filemon Tan told reporters that soldiers had fought about 300 militants, who later fled into the interior of the island.
"This is part of our focused military operation to free foreign hostages held by the Abu Sayyaf," he said.
In September two Canadians, a Norwegian and a Filipino were kidnapped from a resort in Samal Island, also in the south of Philippines.
A video emerged the following month purportedly showing the hostages, which came with a message from militants demanding an end to artillery attacks and calling for negotiations.
The Philippine army has said it will not negotiate and military offensives will continue.
Last month Abu Sayyaf militants beheaded a Malaysian captive, reportedly due to a breakdown in negotiations for his release.
More about:
