Three soldiers and three militants were confirmed killed in the clashes, which involved followers of a slain Indonesian leader of a Southeast Asian militant group, the military said.
"There was attack and counter-attack, sniping and counter-sniping, and artillery fire," military spokesman Colonel Noel Detoyato told AFP, describing the fighting that began on Saturday with an attack on a military post.
The military said the group's base, a concrete building on the outskirts of a remote town in a mountainous region of violence-racked Mindanao island, had been overrun on Thursday night following helicopter gunship attacks.
However a local reporter on the scene said clashes continued through the day.
Up to 61 militants were believed to have been killed, although only three bodies had been recovered, according to the military chief with responsibility for the area, Colonel Roseller Murillo.
Murillo and other military officials said they had no firm evidence to confirm the other 58 reported deaths, and would not say how they came up with the number other than that they relied on intelligence reports.
The fighting took place in and around Butig, a small Muslim-populated town surrounded by heavily forested mountains. One two storeyed house was in ruins and many others were riddled with bullets, according to the local reporter.
More than 20,000 people had fled their homes, taking refuge in a mosque, government evacuation centres and with relatives, according to civil defence officials.
Decades Of Violence
A Muslim separatist insurgency has raged for more than four decades on Mindanao and other parts of the southern Philippines, leaving more than 120,000 people dead.
Efforts to secure a peace deal with the largest rebel group, the Moro Islamic Liberation Front (MILF), recently collapsed after congress failed to pass a law that would have created an autonomous Muslim region in Mindanao.
The collapse of the previous peace process in 2008 led hardline MILF commanders to launch attacks on Christian villages in Mindanao, which killed more than 400 people and displaced 600,000.
This week's fighting took place in a region bordering a stronghold of a powerful MILF commander.
But military officials said MILF did not take part in this week's clashes.
They said the group involved in the clashes was led by followers of Indonesian Ustadz Sanusi, a member of the Jemaah Islamiyah who was killed in the southern Philippines in 2012.
Jemaah Islamiyah militants carried out the 2002 bombings on Indonesia's holiday island of Bali, which killed 202 people. The group has long had a presence in the southern Philippines.
MILF leaders have warned in recent weeks that the collapse of the peace deal could embolden hardline militants who want to resume a violent separatist uprising.
Security analysts have also warned some Islamic militants in the Philippines may want to follow the more extreme violent tactics of the Islamic State group.