Manila  - Philippine police were investigating an alleged 10-million-peso (214,132-dollar) ransom demand for three kidnapped employees of a plywood factory in a southern province, a military spokesman said Thursday.

The ransom demand was allegedly relayed to the owner of the plywood factory in Maluso town in Basilan province, 900 kilometres south of Manila, Lieutenant Colonel Romeo Brawner said.

"We will stick to the no-ransom policy," he said. "We are appealing to the families of the victims as well as the company itself and perhaps the friends of the victims not to pay ransom."

Brawner warned that paying ransom would only encourage the kidnappers to abduct more people.

The three victims were forcibly seized on November 10 by more than 30 heavily armed gunmen who swooped down on the Hightech Woodcraft Corp factory.

The abduction occurred a day after the severed head of a kidnapped school principal was recovered near a petrol station in the nearby Jolo Island.

Police believe the kidnappings in Basilan and Jolo were perpetrated by the al-Qaeda-linked Muslim Abu Sayyaf rebels.

Basilan and Jolo are strongholds of the Abu Sayyaf, which has also been blamed for some of the worst terrorist attacks in the Philippines. (dpa)