Philippines (REUTERS) - Filipino soldiers and refugees caught up in weeks of fighting with Islamist militants were given some rare respite on Sunday when they were treated to a live screening of Manny Pacquiao's World Boxing Organisation welterweight world title defence.

However, the excitement and noisy fanfare at a government centre soon turned into shock and disappointment when the local boxing hero suffered a stunning points loss to unheralded Australian challenger Jeff Horn in Brisbane.

The 29-year-old former school teacher extended his unbeaten record to 17-0-1 in front of a 50,000-strong hometown crowd, but some Filipinos found it difficult to accept the unanimous decision after they felt Pacquiao had dominated the fight.

"It's a hometown decision," Jamael Panggaga, a Marawi resident displaced by six weeks of fighting between security forces and pro-Islamic State militants in the southern Philippine city, told Reuters.

"It's very clear, Horn's face was battered, Manny only was bloodied because of head butts, how can he lose?" said Philippine army sergeant Badrodin Andak, who was among troops guarding the provincial capital.

Soldiers at an army base in Manila were stunned into silence as they left a gymnasium after the ring announcer declared Horn as the new champion, the Australian winning 117-111, 115-113 and 115-113 on the judges' scorecards.

Some of the servicemen in the crowd were among those who have battled Islamic militants on Mindanao island, where more than 400 people have died in the conflict.

"It's a sad day for the Philippines," compatriot Divinagracia Matutina said in a Facebook post. "I was devastated, never expected Manny to lose."

The unanimous decision was considered controversial in the Philippines because Filipinos believed Horn was a dirty fighter, who often used his head to injure Pacquiao.

"Manny Pacquiao's loss in Brisbane would not diminish the honours he bestowed to the people and the flag," Philippine presidential spokesman Ernesto Abella said in a statement.

"Nothing will change, Senator Manny Pacquiao will remain our people's champ."

Many Filipinos are hopeful that a rematch between Horn and Pacquiao, a sitting senator and an army colonel in the Philippine reserve force, will be organised for later this year.