DAVAO, July 27, 2008 (AFP) - Muslim separatists attacked a southern Philippines village, burning 10 houses, wounding three soldiers and causing dozens of people to flee, the military said Sunday.

The attacks came as efforts to reopen peace negotiations between the government and the separatist Moro Islamic Liberation Front (MILF) suffered a setback with the rebels accusing the government of trying to renege on an earlier agreement.

MILF rebels swept into a a district of Aleosan town in the southern island of Mindanao on Saturday, setting fire to 10 houses. Soldiers rushed to the area but were fired upon, wounding three of them, said local military spokesman Major Armand Rico.

Sporadic fighting raged for most of the day and soldiers were still in defensive positions on Sunday, Rico said.

He did not believe the latest fighting was linked to the breakdown in peace talks saying the stall in negotiations 'does not necessarily equate to an escalation of hostilities.'

The MILF charged on Saturday that during informal negotiations in Kuala Lumpur, the government had backed down on a draft agreement, recognising the MILF's 'ancestral domain' in Mindanao.

This led to the breakdown in talks, preventing the resumption of formal negotiations in August.

Peace talks with the 12,000-member guerrilla group which signed a ceasefire with Manila in 2003, have stalled for months due to disagreements over what authority the MILF would exercise over areas they claim as their ancestral homeland.

The nearly four decades-old rebellion has left thousands dead and left Mindanao, the southern third of the country, mired in poverty.

However government officials have insisted that the peace talks can still be revived.

Despite the ceasefire, sporadic clashes between MILF and government forces still take place.