The rebels paraded their hostages on the street
About 100 followers of outgoing renegade governor Nur Misuari have escaped from their base in a government complex, capturing more than 50 civilian hostages as they fled.
Mr Misuari led an uprising last week, ahead of a vote to elect a new governor for the Autonomous Region in Muslim Mindanao (ARMM). More than 100 people died in attacks on army outposts on the nearby island of Jolo.
Monday's vote went ahead amid tight security. Turnout was reported to be poor - as low as 20% in some areas - but there were few reports of violence.
But early on Tuesday morning, Zamboanga city awoke to the sound of explosions and automatic gunfire.
Air force dive bombers and helicopter gunships targeted the rebels, who have been refusing to leave the office complex in the city's suburbs.
Panic
Our correspondent in Zamboanga, Jonathan Head, says there was panic among local residents as stray bullets flew across the city.
Escaping gunmen snatched local residents from their homes, many still wearing their night clothes. After tying their captives together with rope, they led them through the town as human shields with guns to their heads.
One woman, who was released to relay the gunmen's demands, said they had threatened to kill her entire family.
The rebels have since taken over a small public hall where negotiations are taking place. They say they will kill their hostages unless they are allowed to escape with their weapons.
A military spokesman said at least 25 gunmen had died in the assault. Southern military commander Lieutenant General Roy Cimatu said one soldier had also been killed.
Local officials said at least two civilians were killed in the cross-fire and about 5,000 people had fled to evacuation centres.
The final stand
The gunmen belong to the Muslim separatist Moro National Liberation Front (MNLF) - led by Mr Misuari until he was dropped by the group's political leadership earlier this year.
The MNLF fought a long secessionist war, spanning three decades, until a peace agreement signed in 1996 set up the ARMM with Mr Misuari as governor.
The BBC's John McLean in Manila says the MNLF is sticking to its peace agreement with the government and Mr Misuari commands the loyalty of only a small faction.
As part of the peace agreement, elements of the MNLF remained armed, carrying out duties such as guarding ARMM offices.
The gunmen in Zamboanga took no part in last week's violence on Jolo but say they remain loyal to Mr Misuari and refuse to give up their weapons or duties.
Mr Misuari has since been arrested after fleeing the country to Malaysia.
The authorities say Mr Misuari's revolt on Jolo last week was intended to stop Monday's elections for his position as ARMM governor.
Our correspondent in Zamboanga says Mr Misuari lost a lot of support over his performance as governor during the last five years. Allegations of corruption and incompetence led the Philippines Government to back alternative candidates within the MNLF.