The government says video shows the real Abu Sayyaf
The film was shown late at night on the country's main television channels.
A military official, General Edilberto Adan, said the video was found last year at an Abu Sayyaf camp.
The decision to show the video has been seen as a government attempt to undermine opposition to controversial joint US-Filipino military exercises on Basilan.
Philippine President Gloria Arroyo's spokesman, Rigoberto Tiglao, said the footage showed that the joint operations with the US were "not a joke."
"We face one of the most brutal bandit [groups] ever," Mr Tiglao said. "What human being can do that and put it on film and boast about it?"
Kidnapping trade
Washington has accused Abu Sayyaf of having links with the al-Qaeda movement, which it blames for the 11 September attacks on the US.
The US says its troops are on Basilan for training purposes only - the constitution bars them from taking part in armed combat. But many nationalists Filipinos believe that is a cover to allow the US to mount an operation to free a US missionary couple kidnapped by the Abu Sayyaf last May.
Martin and Gracia Burnham, from Wichita, Kansas are being held in the jungles of Basilan, with Filipino nurse Deborah Yap. A third American hostage, Guillermo Sobero, was found beheaded last October.
The rebels seized dozens of other hostages in a series of raids last year. Some were killed, some escaped, and others were released, reportedly for ransoms.
The Abu Sayyaf has made kidnapping for ransom its main activity, though its stated aim is the creation of a Muslim state.
Two Philippine navy commandos were injured in clashes with the rebels on Tuesday, close to where US Special Forces troops are deployed.
The battle took place off the coast of Basilan, about seven kilometres (four miles) from a camp which houses some of the 51 US troops on the island.
No US troops were involved, said Colonel Roland Detabali, operations chief for the Philippine military's southern command.
The troops called in air support and two MG-520 attack helicopters launched strikes on rebel positions, he added.