Military chief of staff Gen. Eduardo Ano said the militants erected Islamic State flags at several locations.
Abdurahman Asmawi from Kelantan and Dr Kamsa Yahya from Kedah, the two reported victims, were killed while fighting alongside Islamic State-linked Maute group who besieged Marawi - a southern city of some 200,000 people. Army tanks packed with soldiers rolled into the southe.
Government troops conduct check point along a highway leading to Marawi three days after Muslim militants lay siege in Marawi city, the southern Philippines, Thursday, May 25, 2017. At least 11 soldiers and 31 militants have been killed, a military spokesman said. The violence forced thousands to flee and raised fears of growing extremism in the country.
He recently warned that ISIL was determined to establish a presence in the southern Philippines and the country was at risk of "contamination".
He gave his troops a free hand to wrest control of Marawi.
Still, he also offered dialogue to militants who are not on the streets fighting.
"We are gravely concerned that the declaration of martial law in Mindanao might lead to more extrajudicial killings and other cases of human rights violations", said Teddy Casino, a former member of the House of Representatives. "If Allah wills it so, then we can not stop it", he said, pointing his finger in the air. "But now they have subscribed to the ideology of ISIS (Islamic State)", Solicitor General Jose Calida told a news conference. "We can not just pinpoint the particular spot". He said governmental planes are at their disposal for the wounded to be transported and the best medical equipment is available.
Bomb drops may be expected to continue as the military is eyeing "more surgical airstrikes" to quickly clear the city of the local terrorist groups.
"We take a serious view of anyone who supports, promotes, undertakes or makes preparations to undertake armed violence regardless of where the violence takes place". "We have to finish this". In 2005, the US Treasury Department seized Hapilon's assets for suspected terrorist activities and association with Al Qaeda and Osama bin Laden.
He said jihadists from Malaysia, Indonesia and Singapore are fighting in Marawi.
Mr Duterte said a local police chief was stopped at a militant checkpoint and beheaded.
Authorities are working to determine the condition of a Catholic priest and worshippers who were taken hostage by gunmen earlier this week.
Hapilon, a leader of another Mindanao-based rebel group Abu Sayyaf, pledged allegiance to Islamic State a year ago and has formed an alliance with Maute. Duterte also noted the importance of illegal drug smuggling to jihadist operations, telling reports that the brothers who founded the Maute group were "policemen in Manila who got enamored with the money of shabu [methamphetamine]".
Although Hapilon and other groups in the southern Philippines have pledged allegiance to the IS, there is no clear sign of significant, material ties.
Hapilon is on Washington's list of most-wanted terrorists and has a $5 million bounty on his head.
The Philippines is Asia's largest Roman Catholic nation, but its southern region has a large Muslim minority.
Duterte promised his armed forces "the weapons and the equipment and we have the air assets to help you".
"We urge the government to remove the causes of terrorism, such as poverty and injustice, through just and accountable governance focused exclusively on the common good", the statement also stressed.
Martial law is extremely sensitive in the Philippines because dictator Ferdinand Marcos used it as a tool to remain in power for part of his two-decade rule, which ended with a "People Power" revolution in 1986.