MANILA (Reuters) - Philippine soldiers have stepped up searches for an Italian Red Cross engineer held by an Islamic rebel group on a remote southern island as he entered his fifth month in captivity, a military spokesman said on Friday.

The government has offered a reward of 500,000 pesos (S$15,350) for information on the whereabouts of 61-year-old Eugenio Vagni, the last of three workers from the International Committee of the Red Cross (ICRC) held on Jolo island.

"We've never stopped looking for Vagni," Lieutenant-Colonel Edgard Arevalo told Reuters by phone, saying local government officials continued to negotiate for the peaceful release of the Red Cross captive.

Vagni was kidnapped, along with Swiss Andreas Notter and Filipina Mary Jean Lacaba, by Abu Sayyaf rebels while the three were inspecting a sanitation project at a local prison on Jolo island on Jan 15.

Notter walked to freedom on April 18 while Lacaba was freed on April 2. Ransoms were suspected to have been paid.

Vagni, believed to be suffering from hernia, has difficulty moving around but was able to call his family on May 8, the ICRC said in a statement on Thursday posted on its website www.icrc.org.

"We appeal to his abductors to release him at once," said Alain Aeschlimann, ICRC's head of operations for Asia-Pacific.

"It is very distressing to realise that he has been held captive for four months already, that he has medical problems and that the situation remains unresolved."

The ICRC said it was concerned for his safety and was worried every time the Red Cross heard about military operations to free Vagni.

Last week, eight people, including the police chief of Jolo island, were killed when security forces clashed with the Abu Sayyaf group holding the Italian engineer.

Vagni has been in contact with his family after the clash, but not since May 8.