Soldiers and police special forces have regained rebel-held areas and are pressing an assault deeper into communities in the coastal outskirts of Zamboanga city.
More than 100 Moro National Liberation Front guerrillas are holding an unspecified number of hostages, in the city, military spokesman Lieutenant Colonel Ramon Zagala said.
"We're gaining ground, we're pushing forward," he said, claiming troops were taking care to avoid harming civilians.
At least 51 rebels have been killed and 42 others captured, most while trying to escape along the coast after discarding their camouflage uniforms for ordinary clothes.
Interior Secretary Mar Roxas said the gunmen would face criminal charges.
Six policemen and soldiers, along with four villagers, have been killed in the standoff, which began on Monday when troops foiled an attempt by the rebels, who arrived by boat from outlying islands, to march and hoist their flag at Zamboanga's city hall.
Instead they swept into five nearby coastal villages and took more than 100 hostages.
Soldiers and police, backed by helicopters and navy gunboats, initially surrounded the rebels with their hostages while government officials tried to convince the insurgents to free their captives and surrender.
But government forces decided to attack on Friday after the guerrillas started setting on fire clusters of houses and fired mortar rounds that wounded several Red Cross aid workers.
While the government's offensive is gaining momentum, Mr Roxas said it is difficult to tell when troops will be able to end the standoff, which has displaced more than 67,000 residents.
The crisis has virtually paralysed the port city of nearly a million people, after authorities closed its international airport and suspended sea-ferry services.
The Moro insurgents, led by rebel leader Nur Misuari, signed a peace deal in 1996, but the guerrillas did not lay down their arms and later accused the government of reneging on a promise to develop long-neglected Muslim regions in the south of the predominantly Catholic nation.
The rebels have become increasingly restive in recent months as a rival rebel group, which engaged President Benigno Aquino III's government in peace talks brokered by Malaysia, overshadows them. The talks have steadily progressed toward a new and potentially larger autonomy deal for minority Muslims in the south.
Misuari, whose group launched a similar attack in Zamboanga city in 2001, has not been seen in public since the standoff began.
"His intention is to provoke violence and internationalise this to make the MNLF a more important player in the peace process," said Stephen Norris, a security analyst with the Control Risks group in Singapore.
Rodolfo Garcia, a retired general, said the government should open talks with Misuari.
Cholo Soliven, president of the Zamboanga City Chamber of Commerce and Industry, said: "There's only one word to describe what is happening in the city - catastrophic. We are losing a lot, our economy is bleeding."