Pro-government soldiers encircled the Makati financial district where some 150 rebels were holding out while negotiators extended a deadline for their surrender by two hours until 1100 GMT.

Around 200 mutineers took over the Ayala Center complex early Sunday and set up booby traps after they were accused of plotting a coup. Some 50 soldiers surrendered shortly before a first government ultimatum expired.

The rebels, sporting red arm bands and led by young officers, accused Arroyo of corruption and staging terrorist attacks in the south to gain US military aid. They are demanding her government step down.

Arroyo said the rebellion was a coup attempt which had no support among the military top brass or the population. She ordered the rebels to surrender or face an all-out military assault.

She also issued a proclamation giving the military emergency powers to "suppress and quell the rebellion" -- the eighth military uprising in the Philippines in the past 17 years.

Around 300 foreigners and residents who were trapped in the Ayala Center overnight were allowed to leave. Among those who emerged from the Oakwood Tower high-rise condominium was Australian ambassador Ruth Pearce. She appeared tired and drawn, but said she had not felt threatened.

The United States and Australia led support for Arroyo, seen as a key partner in the war against Islamic militant terrorist groups in the aftermath of the October 2002 Bali bombing.

"No one should be under any doubt that we fully support the legitimate civilian government of President Gloria Macapagal Arroyo," State Department spokeswoman Joanne Moore said.

Speaking in Singapore, Australian Foreign Minister Alexander Downer said his government considered the rebellion "entirely unacceptable".

"This comes at a very difficult time when the Philippines is in the forefront of the war against terrorism," Downer said. "The last thing any of us wants at this time is this kind of instability."

The rebels took over the complex of high-rise apartment blocks and shopping centers hours after Arroyo accused the soldiers on television of attempting a coup. She ordered their arrest and vowed the "maximum" penalty for them.

Rebel spokesman Navy Lieutenant Senior Grade Antonio Trillanes denied the group was trying to stage a coup.

"We mean no harm to anyone. We are putting these (bombs) to defend ourselves," he said.

Trillanes was among 10 officers who were identified as being part of the plot, all of them under 32 years of age. They made their statement standing against a red flag with a white sun symbol in a video aired on television.

The rebels claimed to have some 2,000 military supporters and Interior Secretary Jose Lina accused ex-military coup plotter-turned opposition senator Gregorio Honasan of involvement.

Honasan, a former army colonel popularly known as "Gringo", led two of the seven bloody coup attempts in the 1980s but was pardoned under a peace deal after which he entered politics.

Military intelligence chief Brigadier General Victor Corpus said "big time" personalities were behind the coup, while police alleged they raided a house owned by jailed former president Joseph Estrada where ammunition and red rebel arms bands were found.

Rumors that a military clique was plotting to overthrow the government gripped Manila last week but Arroyo dismissed them when she met with a group of disaffected junior officers unhappy over pay and corruption.

The mutineers Sunday accused the government of selling ammunition and weapons to Muslim separatist and communist rebels.

The group also accused Arroyo of planning to declare martial law in August, by using bombings in the capital as a pretext to stay in power after her term ends following May 2004 elections. She has promised not to contest the polls.

Arroyo, who came to power in a military-led popular uprising in January 2001, received full support from military chief of staff General Narciso Abaya.

Security was beefed up at the presidential palace with armed guards ringing the perimeter of the compound.

WAR.WIRE