Embattled Philippine troops struggling to force out Islamist militants from a southern city raised the national flag for Independence Day on Monday, in a tearful ceremony dedicated to the scores killed during the conflict.

Thousands of Philippine soldiers, advised by US Special Forces, are locked in fierce combat with hundreds of insurgents who overran Marawi city on May 23, flying black flags of the militant Islamic State (IS) group and using up to 2,000 civilians as human shields.

As gunfire rang out and planes flew bombing raids to pummel districts of the largely-abandoned city, a crowd of soldiers and officials gathered outside a nearby government building to raise the Philippine flag.

“This is dedicated to soldiers who offered their lives to implement our mission in Marawi city,” said Colonel Jose Maria Cuerpo, commander of a Philippine Army brigade fighting in Marawi.

The annual ceremony marks the anniversary of an armed revolt against Spanish colonial rule.

Fighting in the city has left 58 soldiers and police and more than 20 civilians dead, the military said, estimating that almost 200 militants have been killed in the clashes.

Tens of thousands have fled Marawi, which is the Catholic country's most important Muslim city, since troops unexpectedly interrupted plans by the fighters to take over Marawi in a spectacular event to show that IS had arrived in the Philippines.

President Rodrigo Duterte has said the militant attack was part of a wider plot by IS to establish a base in the southern region of Mindanao, and declared martial law there to quell the threat.

But the military has struggled to defeat the heavily-armed gunmen, who have used hostages and pre-existing bomb-proof tunnels to entrench their positions.

“As you know the target was to liberate Marawi today, June 12, but... you can see how complex the problem is and how many new developments there are,” Foreign Secretary Alan Peter Cayetano told reporters in Manila.

On Sunday the region's military chief, Lieutenant-General Carlito Galvez, told a news conference that the fight would be “most difficult, deadly, bloody, and it will take days and months to clear up”.

Defence Secretary Delfin Lorenzana said a captured militant told the military the IS chief, Abu Bakr al-Baghdadi had directly “incited” the gunmen to attack the city of 200,000.

As the conflict intensifies, the US embassy in Manila said on Saturday American forces were providing assistance to the Filipino troops, although it declined to give details for security reasons.

The two countries are bound by a 1951 mutual defence treaty, though Duterte has tried to steer the Philippines away from US influence since he became president last year.