Manila  - Philippine authorities Sunday rejected fresh demands by Muslim militants for government forces to withdraw from a wide area of a southern island where the rebels were holding captive two European Red Cross workers.

The al-Qaeda-linked Abu Sayyaf rebel group also renewed their threat to kill the two hostages - Swiss Andreas Notter and Italian Eugenio Vagni - unless troops pulled back from their jungle hideout on Jolo island, 1,000 kilometres south of Manila.

The rebels freed one of the hostages, Filipino Mary Jean Lacaba, last Thursday without ransom. But they refused to free the two Europeans and reiterated their demand for troops to pull out to pave the way for negotiations.

Defence Secretary Gilbert Teodoro said the government could not give in to the demands of the Abu Sayyaf because a troop pullout would endanger communities on Jolo.

"The military pullout demanded by the Abu Sayyaf is a criminal attempt to allow them to wreak havoc elsewhere," he said.

"These are terrorists," he added. "We don't know what they will do next. We don't even know if they will follow any agreement."

Teodoro also criticized Senator Richard Gordon, chairman of the Philippine National Red Cross, for saying that the lives of the two remaining hostages were in the hands of President Gloria Macapagal Arroyo.

"I think it's an unfortunate statement," he said. "Only the Abu Sayyaf has done wrong and they have the power to release the hostages."

Gordon has asked Arroyo, as commander in chief, to consider ordering a pullout of troops on Jolo as demanded by the Abu Sayyaf to save the lives of the hostages.

He warned that the Abu Sayyaf could present Arroyo with a "macabre gift" on her birthday Sunday as the rebels had done in the past when they beheaded two abducted Filipino teachers on the birthday of former president Joseph Estrada in April 2000.

The rebels also beheaded an American tourist as an Independence Day gift to the Philippines in June 2001.

Teodoro said Gordon's statement "only serve to strengthen the hand of the kidnappers."

He stressed that Philippine authorities were focused on working for the safe release of the remaining hostages, who were abducted on January 15 after visiting the provincial jail on Jolo to oversee a water and sanitation project.

"Our forces are also on guard, but taking care not to put the hostages in danger," he added.

The International Committee of the Red Cross has welcomed Lacaba's release, but lamented that the "nightmare is not over" for Notter and Vagni as well as their families and colleagues.

"Once again, we ask that Eugenio and Andreas remain unharmed," said Alain Aeschlimann, the committee's regional head for operations. "We reiterate our appeal to the kidnappers to release them immediately and unconditionally." (dpa)