Terrorist militants battling security forces in a southern Philippine city have taken hostages, including a local priest, the Catholic Church said Wednesday, after President Rodrigo Duterte declared martial law to combat the gunmen.

"Father Chito Suganob and others were in the Cathedral of Our Lady Help of Christians when members of the Maute terrorist group forced their way into the Cathedral, taking with them Father Chito and others as hostages," Catholic Bishops' Conference of the Philippines president archbishop Socrates Villegas said in a statement.

"They have threatened to kill the hostages if the government forces unleashed against them are not recalled."

Duterte announced on Tuesday night that martial law had been imposed across the southern region of Mindanao, after terrorist militants rampaged through the city of Marawi and engaged in deadly clashes with security forces.

The fighting in Marawi, a mostly Muslim-populated city of 200,000 people, erupted on Tuesday afternoon after security forces raided a house where they believed Isnilon Hapilon, a leader of the infamous Abu Sayyaf kidnap gang and Philippine head of the Daesh group, was hiding.

The United States regards Hapilon as one of the world's most dangerous terrorists, offering a bounty of $5 million for his capture.

More than 100 gunmen responded to the raid by burning buildings and conducting other diversionary tactics, according to Defense Secretary Delfin Lorenzana.

Security analysts say Hapilon has been trying to unite Filipino militant groups that have professed allegiance to IS.

These include the Maute group, based near Marawi, named after two brothers who lead it.

"We call on the Maute group that claims to bear arms in the name of a Merciful and Benevolent God - the very same God we Christians worship and adore - to do the One God true honor by the mercy and benevolence that are two of our God's most exalted attributes," Villegas said in the statement.

"At the time of his capture, Father Chito was in the performance of his ministry as a Priest. He was not a combatant. He was not bearing arms. He was a threat to none. His capture and that of his companions violates every norm of civilized conflict."

Police and military spokesmen were not readily available to comment on Villegas's report of the hostage taking.

In metropolitan Manila's downtown Quiapo district, where a bomb blast earlier this month killed two people and wounded four others in a Muslim community, police Wednesday put up checkpoints, stopping motorists to inspect cars and checking documents of motorcycle riders.

Police said the May 6 blast was sparked by a personal feud, but Daesh group claimed its fighters were responsible.