The woman was killed when a stray mortar shell allegedly fired by the rebels loyal to Moro National Liberation Front leader Nur Misuari hit her house in Zamboanga city.
Military spokesman Lt Col Ramon Zagala said five rebels were killed and two soldiers were wounded as troops battled rebels from close range. He said 35 rebels were still holding out.
Troops are searching two neighborhoods for rebels who seized scores of civilians as human shields September 9 when government forces repulsed their bid to occupy the city.
He said the military had stopped using heavy weapons during the battles to avoid hitting the hostages.
The military operations have rescued more than 170 hostages, and killed or captured more than 200 rebels. Fifteen security forces and nine civilians have also died.
It's the most serious fighting in years between rebels and government forces in the predominantly Roman Catholic nation's south, the scene of a decades-old struggle for self-rule by minority Muslims.
Misuari's group splintered into factions and faded into the background while a bigger rival group entered talks with the government on enlarging an autonomous Muslim region in the southern Philippines.
Misuari has not been seen since the rebel siege began, but President Benigno Aquino III said Thursday that there was growing evidence of his involvement.
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