Malaysian fighter jets launched air strikes on a group of Filipino intruders on Tuesday as security forces sought to end a three-week incursion that has already killed 27 people.
Prime Minister Najib Razak said the government had no choice but to quell the country's worst security crisis in years, sparked when militants invaded to claim the Malaysian state of Sabah for a self-styled Philippine sultan.
"The longer this invasion lasts, it is clear to the authorities that the invaders do not intend to leave Sabah," Mr Najib said, adding that negotiations had gone nowhere.
"The government must take action to safeguard the dignity and sovereignty of the country as required by the people."
The group have been holed up in the village of Tanduo since they landed by boat on 12 February from nearby Philippine islands in an incursion that has exposed Malaysian security lapses.
A reporter told AFP at least two fighter jets roared over the standoff site from early on Tuesday, launching an air bombardment. He said there were a series of explosions lasting about 30 minutes.
Philippine President Benigno Aquino's spokesman said Manila had done all it could to avoid a violent end in Sabah for the followers of 74-year-old Manila-based Islamic leader, Jamalul Kiram III.
After a lengthy standoff, violence erupted on Friday with a shootout between Malaysian security forces and militants in the village that left 12 Filipinos and two police officers dead.
Another gun battle on Saturday in the town of Semporna left six police and six gunmen dead, raising fears of a wider guerrilla infiltration from the Philippines. One gunman was beaten to death in Semporna on Saturday by villagers, police said.
Followers of Kiram, the self-proclaimed heir to the Philippine sultanate of Sulu, have said the gunmen are ready to die to defend his historical claim to Sabah.
The Sulu sultanate's power faded about a century ago but it has continued to insist on ultimate ownership of resource-rich Sabah, and still receives nominal Malaysian payments under a leasing deal struck by Western colonial powers.