MANILA - Philippine President Gloria Arroyo scrapped Wednesday a government peace panel seeking to end a deadly and drawnout Muslim rebellion in the south, officials said, in a major shift in policy.

The move threatens the future of a five-year-old ceasefire between the government and the Moro Islamic Liberation Front (MILF) which has been fighting for an independent Islamic state for most of the past four decades.

The move signals a dramatic change in Arroyo's long-standing policy of continuing a peace process with the 12,000-strong MILF in a bid to end their rebellion before her presidential term expires in 2010.

"Consequently, the president has ordered that government peace panel for talks with the Moro Islamic Liberation Front be dissolved to align all the peace initiatives in accordance with this directive," Ermita told reporters.

About five percent of Filipinos are Muslim, making them the largest minority in the mainly Roman Catholic nation, whose military has been battling separatists in the southern Mindanao region in a deadly campaign.

In a separate statement, Arroyo also said her government would no longer sign a controversial draft agreement that would have given the MILF autonomy over their own Muslim homeland.

"In the light of the recent violent incidents committed by lawless violent groups, the government will no longer sign the agreement," she said.

"There will be no peace gained through violence, no peace agreement can and will be reached through intimidation or the barrel of a gun," she said.

The Supreme Court on August 4 issued an injunction against the deal after it triggered widespread street protests in Christian towns in the south who were left in the dark about the negotiations.

Angered by the court freeze, two hardline MILF leaders Umbra Kato and Abdurahman Macapaar launched deadly raids across dozens of villages and towns on Mindanao island.

The raids left nearly 50 civilians and soldiers dead, while subsequent military offensives have so far killed more than 100 MILF rebels and led to the capture of more than a dozen rebel camps.

Mohagher Iqbal, the MILF's chief peace negotiator, said Arroyo's move signalled the government was preparing to intensify its military attacks to include the entire rebel force and not just the two commanders.

"I don't want to imagine that happening, but the MILF is prepared for any offensive," Iqbal told AFP. "We have to invoke our right to self defence."

He said the MILF leadership has not been officially informed of Arroyo's decision through Malaysia, which has been brokering the peace talks.

Arroyo said the peace process would only move forward after the government widens its consultations to include local executives in areas to be covered by the new autonomous region.

On Wednesday, she said offensives would continue against the MILF, but that troops were directed to respect Muslim civilians during Ramadan.

She ordered relief agencies to also step up their efforts to bring food and aid to the affected areas amid a looming humanitarian crisis.

The National Disaster Coordinating Council said more than 470,000 people "are directly affected and needing assistance of any form".

"They either lost their houses, displaced and/or lost their livelihoods," it said in a report, as it appealed for private donors to send in food and other supplies.