Australia has warned its citizens that terrorists may be planning kidnappings in the central Philippine provinces of Cebu and Bohol, as Philippine soldiers clashed with militants linked to Islamic State.

Cebu City is the country's second largest city with a population of almost three million people.

Five Abu Sayyaf militants and four soldiers were killed during a fire-fight on the island of Bohol, about 650 kilometres south-east of Manila on Tuesday, after security forces spotted 10 militants on three boats.

In updated advice on Tuesday, Australia's smartraveller.gov.au website cited unsubstantiated yet credible information about kidnapping plots in the provinces obtained by the US embassy in Manila.

"If you are planning to visit Cebu or Bohol you should exercise heightened vigilance and review your personal security plans," the advice said.

The advice warned Australians to exercise a high degree of caution across the country because of the high threat of terrorist attack and high level of crime.

Earlier advice warned that terrorists were planning kidnappings in areas frequented by foreigners on the southern part of Cebu island, specifically around Dalaguete and Santander, including Sumilon Island.

Philippine president Rodrigo Duterte has ordered his troops to step-up attacks on the Abu Sayyaf whose leaders have sworn loyalty to Islamic State, declaring "we will go ahead and kill them to the last man".

Philippine armed forces' chief of staff Eduardo Ano said on Monday his troops can eliminate the Abu Sayyaf within months.

"They are no match for us," he said.

But with fast boats, millions of dollars in ransom payments from the families of kidnap victims and support from sympathetic locals and corrupt officials, the Abu Sayyaf has survived many military offensives over more than a decade.

Last month Australian foreign affairs minister Julie Bishop warned that an estimated 600 fighters from south-east Asia could return home after surviving the campaign against Islamic State in Syria and Iraq and establish an Islamic caliphate in the southern Philippines "bringing the threat right to our doorstep".

In February the Abu Sayyaf beheaded a 70-year-old German yachtsman after failing to receive a $US600,000 ransom.

The group beheaded two Canadian hostages last year.

The group has carried out numerous deadly attacks, including the 2004 bombing of a passenger ferry that killed more than 100 people.

Counter-terrorism expert Sidney Jones believes the likelihood of a caliphate emerging on Australia's doorstep is low but that the more likely danger is that pro-Islamic State extremists with deadly skills may use bases in the southern Philippines to plan hits in Mindanao and Manila, or train operatives to carry out attacks elsewhere in the region.

"It is unlikely that hundreds of foreign fighters will flee there as Islamic State is pushed back but even a dozen could cause serious damage," Ms Jones wrote in a paper published in March by the Lowy Institute.

Ms Jones said that an alliance of pro-Islamic State groups in the Philippines appears to have a steady stream of funding, apparently arranged in part through Mahmud Ahmad, a Malaysian professor who has joined the Abu Sayyaf.

Meanwhile, the US has put a 26-year-old Malaysian man on a list of most wanted terrorists.

Malaysian police say that from an Islamic State base in Syria Muhammad Wanndy Mohamad Jedi​ has been using social media to recruit Malaysians and plot terrorist attacks.

On his Facebook page under the name Abu Hamzah Al-Fateh, Wanndy ridiculed his listing by the US Treasury's Office of Foreign Assets Control, saying it would only make him more cautious about his movements and communications.

Wanndy is a senior leader of a group of hundreds of Malay-speaking fighters in a unit called Katibah Nusantara​ who are under the control of Islamic State in the Middle East.

Last week Philippine authorities identified and arrested a Middle Eastern couple allegedly linked to Islamic State who were planning bomb attacks in the Philippines.

The arrests followed tip-offs from US and Kuwaiti officials.