A workable and sustained resolution of the conflict would remove a long-term investment risk in the Philippines, and potentially could attract investment to offshore oil and gas reserves and untapped mines on the southern island.
Ustadz Ameril Ombra Kato, radical commander of the 105th base of the Moro Islamic Liberation Front (MILF), has been replaced by one of his more-moderate subordinates, Zacaria Goma, pending an inquiry, MILF chief peace negotiator Mohaqher Iqbal said.
"Kato is no longer connected with our military arm," Iqbal told Reuters, saying the foreign-trained Islamic cleric has been given a job in the rebel group's Da'wah religious department.
"It's part of our reorganization to build more confidence and give a fresh start to peace negotiations under the next government. We only want to show how serious we are in pursuing peace."
Sen. Benigno Aquino III is expected to be declared the next President by Congress in coming weeks. Unofficial tallies of votes show he has a large lead over his nearest rival.
The MILF has also replaced the head of its ceasefire panel and the spokesman for its military arm, Iqbal said.
"At the strategic level, Kato's dismissal augurs well for the peace process because this could indicate the moderates are now taking the upper hand in the power struggle within the MILF," an army intelligence officer on Mindanao island, where the MILF is based, told Reuters.
Since 1997 there have been off-and-on negotiations between the government and Muslim rebels to end a conflict that has run more than 40 years, killing 120,000 people and displacing 2 million in the south of the mainly Roman Catholic country.
Moderate leaders of the 11,000-strong MILF have dropped demands for an independent Islamic state but want more than just an autonomous government, including a greater share of revenues generated by strategic resources such as oil, gas and metals.
In August 2008, a deal to create a Muslim ancestral homeland with wide political and economic powers was blocked by the Supreme Court after some politicians challenged the agreement.
The aborted deal led to an escalation in fighting, and nearly 750,000 people were displaced by almost a year of hostilities. The government has filed cases in Mindanao courts saying Kato and two other commanders were behind the violence.
A renewed truce took effect last year and formal talks resumed this year with the intention of reaching an interim agreement before the end of President Gloria Macapagal Arroyo's term on June 30, but a deal has not yet been reached.
The two sides will return to Kuala Lumpur this month to try to reach an interim deal before Arroyo steps down.
