Talks in Malaysia stalled last month when the Moro Islamic Liberation Front (MILF) rejected Manila’s political formula to bring peace in the south of the largely Catholic state, although both sides say negotiations will continue.

The talks have been complicated by a splinter separatist group led by a former MILF commander, Ustadz Ameril Umbra Kato, who has rejected the talks and vowed to fight for an independent Muslim state.

“We hope the MILF sees that there’s going to be a big problem in terms of the peace process if they do not handle this Kato problem in a very sensitive way,” said Marvic Leonen, head of the government’s peace panel.

Leonen told foreign correspondents the government considered Kato an outlaw. There are warrants for Kato’s arrest over attacks on farming communities in North Cotabato province in 2008 in which people were killed and homes and farms torched.

Kato’s group were behind two attacks on government forces this year, but troops are not attacking the breakaway group due to a cease-fire agreement with the MILF, Leonen said.

The separatist insurgency dates back to the late 1960s, and has hampered the development of Mindanao and smaller southern islands. The MILF itself is a breakaway from the Moro National Liberation Front, which had struck a deal with dictator Ferdinand Marcos.

The government and the MILF have been in talks since 1997, and hopes for a breakthrough were raised by a secret meeting in Japan last month between President Benigno Aquino and MILF head al Haj Murad Ebrahim.

However, the separatists rejected a government offer to create a tripartite body to lobby for reforms and laws to setup a new political entity for Muslims and indigenous people in the south. The MILF had sought a sub-state in the south.

“This is not a deadlock ... there’s no breakdown,” Leonen said, a stance echoed by the MILF leader.

“The negotiation is still on,” Murad said in a television interview. “Even if we reject the proposal then the government can still make another proposal.”