ZAMBOANGA, PHILIPPINES - Islamic militants beheaded a retired Christian carpenter abducted nearly two months ago in the southern Philippines, police said Monday.

The 61-year-old was kidnapped April 21 on the island of Basilan by a kidnap gang believed allied with the Abu Sayyaf group, a small group of self-styled Islamic militants blamed for the country's worst terrorist attacks in recent years.

The kidnappers gave his family until Saturday to hand over 500,000 pesos ($15,400) in ransom.

They failed to raise the ransom, police said, and a day later the victim's severed head was found by villagers in a town that is a known stronghold of extremists.

'The villagers found the head of the victim,' said Chief Inspector Rolando Democrito, the local police commander, adding that the family also confirmed the identity. 'We have not found his body.'

Abu Sayyaf militants are still holding hostage Italian Red Cross engineer Eugenio Vagni, who was seized along with a Swiss and a Filipina colleague in nearby Jolo island in January.

The two other hostages were separately released earlier.

The military says that Vagni, who is believed sickly and immobile due to a hernia, is still being held captive in a jungle area on Jolo.