Philippine President Rodrigo Duterte declared the southern city of Marawi liberated from pro-Islamic State militants on Tuesday, although a military spokesman said 20-30 rebels were still fighting it out and were holding about 20 hostages.

Speaking to soldiers a day after the killing of two leaders of the rebel alliance, Duterte said the fight was over and it was time to heal the wounded and rebuild the city of 200,000 people on the island of Mindanao.

"I hereby declare Marawi City liberated from terrorist influence that marks the beginning of rehabilitation," Duterte told soldiers in Marawi.

Isnilon Hapilon, Islamic State's "emir" in Southeast Asia, and Omarkhayam Maute, one of two "Khalifas" at the helm of the Dawla Islamiya militant alliance, were killed in a targeted operation on Monday and their bodies had been recovered and identified, authorities said.

The 148-day occupation by Islamic State loyalists marked the country's biggest internal security crisis in years.

Experts say the government has for years underestimated the extent to which extremism has taken root in impoverished and underdeveloped Muslim areas of the Catholic-majority Philippines.

Military spokesman Restituto Padilla said that although the fight was not completely over, the remaining rebels were "stragglers" who no longer posed a threat.

"There is no way that they can get out anymore, there is no way for anyone to get in," Padilla told news channel ANC.

"So choking them to death at this point will be very key for our troops to do since the area is very much contained and very much controlled."

Padilla said Malaysian operative Mahmud Ahmad had been in Marawi City since the start of the fight and the military believed he was still there. The authorities could not be completely certain, however, but saw him as no threat.

"Dr. Mahmud is an academic, he's not a fighter," Padilla said. "We don't feel he is a problem."

Some security experts say Mahmud, 39, a skilled recruiter and fundraiser who trained at an al Qaeda camp in Afghanistan, is a candidate to replace Hapilon as Islamic State's point-man in Southeast Asia.