Zamboanga City Mayor Maria Isabelle Climaco said the rebels were demanding international mediation. She said a former governor from the rebels' stronghold of Sulu province tried to talk to the gunmen Tuesday, but "they refuse to listen to anybody locally."
"They say that it's an international problem, and no less than the international community, the U.N., should come in," she told television network ABS-CBN. Shots rang out as she spoke from the city hall.
There were no immediate reports of anyone hurt in Wednesday's sporadic trading of fire.
The MNLF rebel group signed a peace accord brokered by a committee of the Organization of the Islamic Conference with the government in 1996, but hundreds of its fighters held on to their arms and have recently accused officials of reneging on a promise to develop an autonomous region for minority Muslims in the southern Mindanao region. They also felt left out after a breakaway faction engaged in successful peace talks with the government brokered by Malaysia.
Last month, the MNLF issued new threats to secede by establishing its own republic.
However, its leader, Nur Misuari, has not appeared in public or issued any statement since about 200 of his followers barged into Zamboanga city's coast early Monday and clashed with soldiers and police. The fighting left at least nine combatants and civilians dead and several wounded.
The rebels took scores of residents hostage, holding them in houses and a mosque that have been ringed by troops.
President Benigno Aquino III said the top priority was the safety of the hostages and residents of the city. He sent top Cabinet officials and his military chief of staff to oversee the security crisis in the country's south, the scene of decades-long Muslim unrest and the homeland of minority Muslims in the predominantly Roman Catholic nation.
Interior Secretary Mar Roxas said a crisis committee led by Climaco, the city mayor, was ready to negotiate with the guerrillas for the release of the hostages. He said some officials had opened talks with the rebels "at different levels," including a commander loyal to Misuari, but added there had been no breakthrough.
The crisis comes as a rival rebel group, the 11,000-strong Moro Islamic Liberation Front, has made substantial progress toward a new autonomy deal for Muslims in peace talks with the government.
The latest round of those talks resumed Tuesday in Kuala Lumpur, Malaysia's main city.
Military spokesman Lt. Col. Ramon Zagala said that the MNLF rebels had planned to march into Zamboanga, a city of nearly 1 million people, and hoist their flag at city hall, but that government forces discovered the plan.
Presidential adviser Teresita Deles, who oversees the talks with the Moro Islamic Liberation Front, condemned the actions by Misuari's group, challenging claims by some of Misuari's followers that they planned only to stage a peaceful protest.
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Associated Press writers Jim Gomez and Teresa Cerojano in Manila, Philippines, contributed to this report.