A public market was set on fire during the attack
The Philippines Government has called off talks with the main Muslim separatist group, the Moro Islamic Liberation Front (MILF), after about 30 people died in an attack by the rebels on Sunday.
The meeting with the MILF, which was scheduled to begin in Malaysia on Friday, was aimed at paving the way for formal peace talks.
But a spokesman for the Philippines President, Gloria Arroyo, said the government was now more concerned with the hunt for the perpetrators of Sunday's attack, on Mindanao island.
Manila has offered a reward of almost $1m for information leading to the capture of rebel leaders.
The incident came two weeks after at least 16 people were killed when the MILF attacked another town on the island.
The group is also blamed for bomb attacks at an airport and a port earlier this year, in which nearly 40 people died.
"We shall not stand for terrorism in the guise of a fight for
freedom," President Arroyo said in a statement.
Mrs Arroyo said the talks with the MILF would have to wait "until we can establish more auspicious circumstances to
move the peace process forward".
The BBC's correspondent in Manila, John Mclean, says Sunday's raid on Siocon, a predominantly Christian town on southern Mindanao island, was one of the biggest by the MILF since a ceasefire between the guerrilla group and the Philippines Government broke down in February.
The guerrillas seized the town hall and a hospital and set on fire the town's public market. Many casualties were civilians.
The rebels also took 57 people hostage. Government troops regained control of the town later that day and all but three hostages were released.
A spokesman for the guerrillas said the attack had been directed at an army battalion headquarters, in response to a continuing military offensive and that there had been no intent to harm civilians.
Talking to the BBC's East Asia Today programme, MILF spokesman Eid Kabalu said it was still open to peace talks.
But, he said, "it takes two to tango, if the other party is no longer interested in negotiation, then no matter how willing the MILF are to pursue a peaceful solution in Mindanao, what can we do?"
The 12,500-strong MILF has been waging a 25-year insurgency against the government, with the aim of establishing an independent Islamic state in the southern third of the country.
Despite a ceasefire signed in 2001 and a series of intense negotiations, the two sides have failed to come to a workable solution.