KUALA LUMPUR (3^rd UPDATE) - Malaysia's government said Thursday that its security forces have surrounded dozens of suspected Philippine militants in a remote area with a history of incursions by armed Filipino Islamic groups.

About 80-100 gunmen had been cornered in the Malaysian state of Sabah on Borneo island, Home Minister Hishammuddin Hussein told reporters.

He said security forces were negotiating with the men near the small coastal town of Lahad Datu.

"We know the situation is still under control. I confirm that no Malaysian citizens, to my knowledge, are being held hostage or for ransom," Hishammuddin said.

"Security forces are still in control and negotiating with them, some of whom are armed."

He declined to confirm that the gunmen were from the adjacent southern Philippines.

But asked whether Philippine authorities were involved in negotiations, Hishammuddin said: "Of course they will have to be involved in the operations."

National police chief Ismail Omar had said in a statement late Wednesday that "the intrusion is a result of the problems in the southern Philippines".

That was an apparent reference to Muslim militants and other lawlessness in the southern Philippines, which lies just across the Sulu Sea from Sabah.

Malaysia is predominantly Muslim.

Earlier Thursday Prime Minister Najib Razak was quoted by The Star newspaper as saying police were negotiating with the gunmen "to get the group to leave peacefully to prevent bloodshed".

"We have surrounded the area and our police and armed forces have the ability to handle the matter," he was quoted as saying.

The Star's report added that a tight security ring including army and naval forces had been thrown around the "heavily armed" group.

Wednesday's statement by Ismail had said the men had surrendered when ordered and the situation was defused. The government has not yet explained the about-face.

A Philippine military official told AFP that Manila did not rule out the possibility that the men could be members of the Abu Sayyaf.

The small gang of self-styled Islamic militants has carried out previous raids into Malaysian waters.

In 2000 Abu Sayyaf guerrillas seized 21 mostly Western holidaymakers as hostages at the Malaysian scuba diving resort of Sipadan near Lahad Datu, taking them off to Philippine islands. They were later ransomed.

"We have received similar reports but we cannot confirm, nor rule out, whether they are members of the ASG (Abu Sayyaf group)," said Philippine southern command military chief Lieutenant General Rey Ardo.

"Other lawless elements as well as (Filipino) pirates are also known to stray into Malaysian waters."

Security on Sabah's coast has been a problem for Malaysia, with tens of thousands of Filipinos believed to have migrated illegally to the state over the past few decades and people moving freely across the maritime border.

Two Malaysians were kidnapped from a plantation in the area in November and were believed to have been taken to the southern Philippines.