The rebels in Zamboanga City, about 530 miles south of the Philippine capital Manila, had taken Jose Chiquito Malayo, the city's police chief, hostage after he entered the rebel-held area, Philippine officials said.
To the surprise of government officials, Malayo emerged with 23 surrendering rebels several hours later, The New York Times reported.
Hundreds of rebels, identified as members of the Nur Misuari-led faction of the Moro Liberation Front, entered Zamboanga City on the country's southern-most Mindanao Island last week, apparently with the aim of taking over the largely Christian city. The rebels took about 180 people hostage, though about 116 of them were later freed or rescued earlier this week.
More than 90 police officers, soldiers, rebels and civilians have died since the fighting began Sept. 9. At least 82,000 locals have been displaced by the violence.
Malayo was negotiating the release of the remaining hostages with the rebels when they held him at gunpoint, a statement from the Philippine National Police said.
Later Tuesday, troops launched an operation to rescue Malayo and his escorts, though military and government officials refused to release details of the operation, Sunstar.com.ph reported.
A cease-fire between the military and MNLF announced over the weekend had not taken hold.
The MNLF, founded in 1971, has sought an autonomous region for the Muslims in the country. The group signed a peace deal with the Philippines government in 1996 but some of its members have since broken away from the group to continue its campaign.