Men believed to be members of the Abu Sayyaf group tossed the grenade into a karaoke bar on Jolo island late Monday, police said.
The Abu Sayyaf are also holding three Red Cross volunteers, including an Italian and a Swiss national, in Jolos interior jungles and police said the attack could have been meant to divert military pressure on the kidnappers.
'The explosion targeted the beer joint,' said Inspector Usman Pingay, the towns police chief.
'We have reports saying that the UTG was responsible for the attack,' he said, referring to the Urban Terrorist Group, a unit of the Abu Sayyaf.
The blast came just hours after the Abu Sayyaf commander believed to be holding the hostages, Albader Parad, was reportedly wounded in a clash with troops.
Parads men snatched Filipina Mary Jean Lacaba, Italian Eugenio Vagni and Swiss national Andreas Notter on January 15 while they were on a humanitarian mission to Jolo, an impoverished island and a stronghold of the Abu Sayyaf.
The International Committee of the Red Cross (ICRC) in a statement said it was concerned about the latest violence, and warned that it could place the hostages in danger.
Alain Aeschlimann, the ICRCs head of operations in Asia, said he last spoke with the hostages by phone March 11. Their fate after the fighting Monday remained unknown.
'The ICRC is aware that an exchange of gunfire took place in the region on Monday, 16 March,' Aeschlimann said. 'Were very concerned to hear about this development.'
The Abu Sayyaf has not made public demands for ransom, although local officials trying to secure their release have said they received demands for a million dollar ransom. The claim however could not be independently verified.
The Abu Sayyaf, or bearers of the sword, is blamed for the countrys worst militant attacks, including the 2004 bombing of a passenger ferry that killed over 100 on Manila Bay.
It has kidnapped dozens of foreigners, businessmen and religious workers over the past decade and is on the US governments list of foreign terrorist organizations. It also blamed for the deaths of two American hostages seized from a Philippine resort in 2001, one of whom was beheaded.
