The fighting, in which nearly 100 people have been killed, has highlighted lingering grievances in the Catholic-majority country despite its growing economy and an agreement with the biggest Muslim rebel group that was meant to bring peace.
The guerrillas who stormed into the city of Zamboanga on Monday last week belong to a breakaway faction of the Moro National Liberation Front (MNLF).
They object to a deal aimed at ending 40 years of conflict signed last October with the main Muslim rebel group, the Moro Islamic Liberation Front (MILF), and are trying to derail it.
An army spokesman said on Tuesday the guerrillas were fleeing from Zamboanga and heading to outlying islands, off the main southern island of Mindanao.
While the army had freed about 200 hostages since late on Monday, the fleeing rebels had taken captive a team of police officers, including the Zamboanga City police chief, police said.
Armed forces spokesman Lieutenant-Colonel Ramon Zagala told reporters the army had killed 34 rebels in the past 24 hours
"Our forces continue to press on and push them out of the city...We will finish this problem at the soonest possible time," Zagala said, while sounding a note of caution: "The fighting is not over yet."
A Reuters witness saw some of the rescued hostages with bruises and other minor injuries as they boarded army trucks and were taken away. Some elderly women wept. All of them looked exhausted.