The blast, caused by an improvised explosive device, tore through the bus, which was parked inside a terminal in the city of Digos on troubled Mindanao island, they said.

It was not immediately clear how many passengers were aboard the bus or how many people were at the terminal at the time of the explosion.

Witnesses quoted by police said the vehicle?s roof and sides were ripped open by the force of the explosion.

'It was so powerful that the blast decapitated a civilian,? said regional army spokesman Major Armand Rico.

Four people were killed on the spot, while the fifth victim died in hospital of injuries sustained in the explosion, police said.

Maj Rico said troops had been sent to the area to set up roadblocks along possible escape routes in a bid to catch the culprits.

No one immediately claimed responsibility for the incident.

Regional police Chief Andres Caro said investigators were collecting debris and bomb fragments at the scene in an effort to reconstruct the device used in the attack.

Mr Villaroman told The Associated Press that a notorious extortion gang named Al Khobar had demanded 500,000 pesos (S$15,804) plus a 50,000 peso monthly payment from the bus company in July.

When the management refused, the extortionists bombed a bus in Digos on July 23, killing one person and wounding 32 others, he said.

The group has been terrorising bus companies and has been blamed for several bus bombings in the area. Officials say the group has ties to Muslim militants, who are active in the region.

The explosion came as government troops are fighting Moro Islamic Liberation Front rebels on the opposite side of the main southern region of Mindanao.

Government forces launched air and ground assaults last month targeting three rebel commanders and their men who were blamed for killing dozens of civilians and pillaging southern villages on Aug 18.

The fighting has killed at least 49 civilians and displaced more than 300,000 people in five provinces in Mindanao, the government said.

At least 17 soldiers and pro-government militiamen and more than 100 guerrillas have been killed, according to the military. -- AP/AFP