Defence officials in Washington say that hundreds of US troops are to join national forces on combat missions against rebels in the Philippines.
US troops were first deployed in 2002
Special forces soldiers - supported if needed by marines - will be used in an offensive against the rebel Islamic group Abu Sayyaf on the southern island of Jolo, the officials said.
Washington says the troops will be under Philippine command but will be allowed to fight.
The issue is sensitive in the Philippines, a former US colony, whose constitution bans foreign troops from fighting on its soil.
Philippine officials played down the reports, describing it merely as an extension of an existing programme under which US forces train their Philippine counterparts.
The BBC's correspondent at the US defence department, Nick Childs, says the operation is a significant escalation in US military co-operation with the Philippines.
This is different - this is an actual combined operation, and it is US forces accompanying and actively participating in Philippines-led offensive operations
The deployment will include about 350 special forces soldiers and 400 support personnel on the ground with 1,000 marines stationed offshore who could be called in at short notice.
The operation could start as early as next month on Jolo, which is a stronghold of Abu Sayyaf - a group denounced by the US as a terrorist organisation with past links to al-Qaeda.
A US defence official said of the deployment: "This is different. This is an actual combined operation, and it is US forces accompanying and actively participating in Philippines-led offensive operations."
But a spokesman for Philippine President Gloria Arroyo insisted the programme was merely the latest part of the programme under which US troops have been giving advice on anti-terror tactics.
No combat troops - everything will be for training and advice
Philippine Government spokesman
Ignacio Bunye said the role of the US forces was still being worked out, but a constitutional ban on foreign troops fighting on Philippines soil was still in force.
He said the operation would be similar to that conducted on Basilan last year against Abu Sayyaf, which is believed to have about 500 members.
Then US troops accompanied local soldiers in missions against the rebels, who are best known for their kidnapping-for-ransom operations, but who also want Muslim autonomy in the south of the overwhelmingly Catholic country.
"In other words, no combat troops. Everything will be for training and advice," Mr Bunye said.
US soldiers in Basilan were armed but could only fire back in self-defence.
The US put a $5m bounty on the heads of Abu Sayyaf's leaders for the murder of two Americans in a hostage crisis that ended last year.
On Friday, there was fresh violence in the south of the Philippines when two small explosions outside a crowded
shopping mall injured at least three people.
The blasts hit a mall in Koranadal city in South Cotabato province.
A power line was also bombed on the island of Mindanao.
An army spokesman said he believed the attack was the work of another Muslim rebel group, the
Moro Islamic Liberation Front.
On Thursday, at least 16 people were killed in two attacks blamed on the MILF.