The Philippine government and the country's biggest Muslim rebel group announced Sunday they had agreed a deal to end a decades-long separatist insurgency that has killed more than 150,000 people.

The agreement would see the establishment of a new semi-autonomous Muslim area in the resource-rich southern Philippine region of Mindanao, which the 12,000-strong Moro Islamic Liberation Front regards as its ancestral homeland.

"This framework agreement paves the way for a final and enduring peace in Mindanao," President Benigno Aquino said in a nationally televised address.

"It brings all former secessionist groups into the fold. No longer does the Moro Islamic Liberation Front aspire for a separate state."

The MILF hailed the breakthrough, which was achieved in the latest round of peace talks in Malaysia that ended on Saturday, as the "beginning of peace".

"We are happy and we thank the president for this," MILF vice chairman for political affairs Ghazali Jaafar told AFP by phone from his base in Mindanao.

US Secretary of State Hillary Clinton called the agreement "a testament to the commitment of all sides for a peaceful resolution" to the conflict.

"The next steps will be to ensure that the framework agreement is fully implemented," she said in a statement.

The Philippine government and the MILF said they were aiming to reach a final peace deal before the president's term ends in the middle of 2016. But they also pointed to major obstacles to be overcome.

Aquino said a final agreement would have to be approved by a plebiscite.

Such approval is not certain in the mainly Catholic country. A planned peace deal during the term of previous president Gloria Arroyo crumbled in 2008 at the final moment amid intense domestic opposition.

Ghazali also emphasised the agreement reached over the weekend was just a "road map", and said there had been no deal yet on significant issues such as the extent of the territory to be included in the new semi-autonomous region.

There are roughly four million Muslims in Mindanao. Thy see it as their ancestral homeland dating back to Islamic sultanates established before Spanish Christians arrived in the 1500s.

Muslim rebel groups have been fighting for independence or autonomy in Mindanao since the early 1970s.

The rebellion has claimed more than 150,000 lives, most in the 1970s when all-out war raged, and left large parts of Mindanao in deep poverty.

The MILF is the biggest and most important remaining rebel group, after the Moro National Liberation Front signed a peace pact with the government in 1996.

An autonomous region was created in parts of Mindanao as part of the deal.

But Aquino said Sunday that was a "failed experiment", as he outlined corruption and violence in the area. The envisaged new autonomous region would replace the old one.

After decades of Catholic immigration, Muslims are now a minority in Mindanao. But they have insisted they should be allowed largely to govern the region themselves and control its riches.

Mindanao is home to vast untapped reserves of gold, copper and other minerals, as well as being one of the country's most important farming regions.

Aquino said Muslims would have a "fair and equitable share of taxation and revenues" in the new autonomous region. The national government would retain control over defence and security, as well as monetary policy.

The MILF began peace talks with the government in 1997. They fell apart when then-president Joseph Estrada declared an all-out war against the rebels in 1998.

Arroyo brokered a ceasefire with the MILF in 2003 and began peace talks.

But after the 2008 peace deal crumbled, two MILF commanders led attacks on mainly Christian villages in Mindanao, with the unrest killing 400 people and displacing about 750,000 others.

Aquino reinvigorated the peace process in August last year when he met MILF chairman Murad Ebrahim in Japan. Their encounter was the first ever face-to-face talks between a sitting president and a MILF leader.

The British government welcomed the agreement but said more needs to be done.

"One of the most relevant lessons at this point is to recognise that even after an agreement it won't all be plain sailing, and there will still be challenges," British envoy Stephen Lillie said in a statement.