The assault came shortly after Interior Secretary Angelo Reyes gave the inmates 15 minutes to surrender after a deal Monday to end the drama fell apart over the militants' demand for food.
"We have taken control of all the floors," Metro Manila Police Chief Avelino Razon quoted the ground commander as saying less than an hour after the operation began. But it wasn't immediately clear if the militant inmates had been subdued.
As the deadline passed, gunfire rang out at the prison compound in Camp Bagong Diwa. Police fired tear gas and officers and sharpshooters were seen running in and out of the main steel gates wearing gas masks.
Some detainees were seen scaling down the walls inside the compound as thick smoke billowed out. A police helicopter hovered above and ambulances waited for casualties.
"We have adequately prepared for this particular exercise, this particular offensive that we have to take," Reyes said. "We have no other option left. We have made provisions for hasty evacuation, medical attention of those people who might be injured."
The inmates, led by suspects from the brutal Muslim extremist group Abu Sayyaf, had agreed to surrender after their failed jailbreak Monday left five people dead, but the deal broke down when they demanded food first, prompting civilian negotiators to leave in frustration.
"They refused to yield the firearms which they grabbed from the guards and turned down our calls and assurances for their safety, including the plea of our Muslim leaders," Reyes said after a dawn meeting of the government's crisis committee.
The jail has about 425 suspects, including 129 suspected members and leaders of the al Qaeda-linked Abu Sayyaf group, which is notorious for deadly bombings and ransom kidnappings in which some hostages were beheaded.
The crisis began when suspected Abu Sayyaf members overpowered and stabbed their guards, then took away their pistols and ammunition, Razon said. A shootout ensued.
At least three guards were killed, said police Superintendent Agrimero Cruz Jr. Two Abu Sayyaf members also were killed, police said.
Police spokesman Leopoldo Bataoil said about 10 men were involved in the uprising, led by Abu Sayyaf members Alhamzer Manatad Limbong and Kair Abdul Gapar.
Limbong, also known as Kosovo, was allegedly involved in a mass kidnapping in 2001-02 that left several hostages — including two Americans — dead, and a ferry bombing a year ago that killed more than 100 people in the Philippines' worst terrorist attack.
Gapar is a kidnap-for-ransom suspect.
The inmates' spokesman told DZBB radio the suspects were holding about 100 hostages, but police said only inmates remained inside the aging building.
In the hours before the assault, an armored personnel carrier moved in front of the steel-fenced detention center and another was positioned outside the gate. In a building across from the detention center, about two dozen police took cover.
A number of Abu Sayyaf suspects have escaped from Philippine jails. Philippine jails are often dilapidated, with inadequate and sometimes corrupt staff.
State prosecutor Peter Medalle, who is handling several cases involving the Abu Sayyaf, said jail guards were tipped off about a possible prison break three weeks ago from an intercepted mobile phone conversation between Limbong and Abu Sayyaf leader Abu Solaiman.
"We warned them repeatedly ... as late as last week of the planned escape. Apparently, our warnings were ignored," he said.
Two years ago, a top terror suspect, Indonesian Fathur Rohman Al Ghozi, escaped from Manila police headquarters while serving a 12-year term for possession of explosives. He was killed in a shootout with police a few months later.
In April, more than 50 inmates, led by suspected Abu Sayyaf guerrillas, used a smuggled pistol to flee from a jail on southern Basilan Island. In December, a Filipino suspect who was being interrogated about a bomb found on a bus was fatally shot at a Manila detention center after allegedly killing a guard.
By Oliver Teves