Communist guerrillas in the Philippines demanded on Monday that the military halt an offensive in a mining area in the south in exchange for talks on freeing a captured lieutenant, but the Army rejected the call.

"The safe and orderly release of Lieutenant Vicente Camayo can only be achieved through negotiations and on condition that the military operations in the area are stopped," the Communist Party of the Philippines (CPP) said in a statement.

Camayo, commander of a special forces company, was captured after communist New People's Army (NPA) guerrillas attacked an Army base near Monkayo, a mining town on the southern island of Mindanao on November 7.

The rebels said the Army should "cease military operations in Monkayo" because it would endanger the lieutenant's life and deter negotiations for his possible release. They also assured his family that the soldier was getting humane treatment.

"We will never negotiate with terrorists," Lt. Col. Ernesto Torres, an Army spokesman, told reporters, adding troops in the area were ordered to continue efforts to free the captive army officer.

Torres said the rebels were using the captive officer as a propaganda tool as well as a bargaining chip to force Manila to resume peace talks with the communist National Democratic Front in Norway. Talks have been stalled since August 2005.

The rebels refused to return to peace negotiations unless the Philippines helped remove the communist movement and its leader, Jose Maria Sison, from terrorist blacklists in the United States, several Western European states and Australia.

The communist conflict, which started in the late 1960s, has killed more than 40,000 people and scared off investors from the resource-rich Philippines.

The 5,000-member NPA targets mines, plantations, timber, construction and telephone companies to raise funds and disrupt the economy.

Over the last nine months, fighting between the government and the NPA rebels has been escalating in the Compostela Valley, a mining province on Mindanao, where Monkayo is located.

The area has become a centre of communist rebel activities due to the huge amount of money generated from extortion, said Torres, adding violence has been on the rise in the area where mainly small miners operate.