Militants linked to Islamic State swept through a southern Philippine city, beheading a police chief, burning buildings, seizing a Roman Catholic priest and his worshippers and raising the black flag of Isis, regional authorities have said.

President Rodrigo Duterte, who had declared martial law across the southern third of the country, warned he may expand it nationwide.

At least 21 people were killed in the fighting, officials said.

As details of the attack in Marawi emerged, fears mounted that the largest Roman Catholic state in Asia could join a growing list of countries grappling with the spread of influence from Isis in Syria and Iraq.

The violence erupted on Tuesday after the army raided the hideout of Isnilon Hapilon, a commander of the Abu Sayyaf militant group that has pledged allegiance to Isis. He is on Washington’s list of most-wanted terrorists with a $5m (£3.9m) reward for information leading to his capture.

The militants called for reinforcements and about 100 gunmen entered Marawi, a mostly Muslim city of 200,000 people on the southern island of Mindanao, according to the defence secretary, Delfin Lorenzana said.

“We are in a state of emergency,” Duterte said on Wednesday after he cut short a trip to Moscow and flew back to Manila, the Philippine capital. “I have a serious problem in Mindanao and the Isis footprints are everywhere.”

He declared martial law for 60 days in Mindanao, home to 22 million people, and vowed to be “harsh”.

“If I think that you should die, you will die,” he said. “If you fight us, you will die. If there is open defiance, you will die. And if it means many people dying, so be it.”

But Duterte said he would not allow abuses and law-abiding citizens had nothing to fear.

Marawi’s bishop, Edwin de la Peña, said the militants forced their way into Marawi Cathedral and seized a Roman Catholic priest, 10 worshippers and three staff.

The priest, Father Chito, and the others had no role in the conflict, said Socrates Villegas, archbishop and president of the Catholic Bishops’ Conference of the Philippines.

“He was not a combatant. He was not bearing arms. He was a threat to none,” Villegas said of Chito. “His capture and that of his companions violates every norm of civilised conflict.”

Villegas said the gunmen were demanding the government recall its forces.

A military spokesman, Col Edgard Arevalo, said 13 militants had been killed, and five soldiers had died and 31 others had been wounded. Other officials said a security guard and two police officers were also killed, including the beheaded chief.

Arevalo said troops had cleared militants from a hospital, the city hall and Mindanao State University. About 120 civilians were rescued from the hospital, the military said.

Thousands of people have fled the city, said Mary Jo Henry, an emergency response official. She quoted another official as saying Marawi was like a ghost town.

Broadcaster ABS-CBN showed people crammed inside and on top of public vehicles leaving the area, and some walking with their belongings as they passed through acheckpoint manned by soldiers.

Martial law allows Duterte to use the armed forces to carry out arrests, searches and detentions more rapidly. He has repeatedly threatened to place the south, the scene of decades-long Muslim separatist uprisings, under martial law.

Rights groups fear martial law powers could further embolden Duterte, whom they have accused of allowing the extrajudicial killings of thousands of people in his crackdown on illegal drugs.

Hapilon, an Arabic-speaking Islamic preacher known for his expertise in commando assaults, pledged allegiance to Isis in 2014. He is an Abu Sayyaf commander and was wounded by a military airstrike in January.

Troops sealed off important entry and exit points to prevent Hapilon from escaping, the military chief of staff said.

“We will conduct house-to-house clearing and do everything to remove the threat there. We can do that easily,” Gen Eduardo Año said,adding that it was more difficult in an urban setting because of the need to avoid civilian casualties. He said the group erected Isis flags at several locations.

Duterte met Russia’s president, Vladimir Putin, late on Tuesday and said he was counting on Russia to supply weapons for the Philippines to fight terrorism.

“Our country needs modern weapons. We had orders in the United States, but now the situation there is not very smooth, and in order to fight the Islamic State, with their units and factions, we need modern weapons,” he said, according to Tass, the Russian state news agency.

While pursuing peace talks with two large Muslim rebel groups in the south, Duterte has ordered the military to destroy smaller extremist groups that have tried to align with Isis.

AP in Iligan City