Shadow economies, underpinned by illegal drug trade and gun-running, will continue to fuel violent extremism and attacks on urban areas in the insurgency-racked southern Philippine island of Mindanao, experts have warned.

"The problem remains. The Maute group may have been effectively defeated in Marawi, but not in the case of the ideology. The ideology remains," Mr Francisco Lara, Philippine manager of the World Bank-funded think-tank International Alert, said at a news briefing.

The ultra-radical Maute group, formed in 2013 by brothers Abdullah and Omarkhayam Maute, provided the bulk of fighters that stormed Marawi city on May 23 and held large parts of it for five months.

More than 1,000 militants, government troops and civilians were killed in the conflict. About 400,000 people were displaced.

Mr Lara said on Wednesday that a "major enabling factor" is the rise of shadow economies that provide resources and funding to the Islamist militants.

He said money from drug deals, gun-running and extortion rackets, as well as ransoms from families of kidnap victims allowed the Maute group to lay siege to Marawi.

Security forces seized 11kg of crystal methamphetamine, estimated to have a street value of up to 250 million pesos (S$6.7 million), as they fought their way to areas controlled by the militants in Marawi in June.

Also recovered that month from a Maute stronghold were nearly 80 million pesos in cash and cheques.

Mr Lara said Marawi is a fertile target because it is a "seat of the drug industry" in Mindanao.

International Alert did not give the scale of the shadow economies in terms of value. But the group measured it in terms of the violence they have spawned.

It reported that there has been an explosion of violence in Muslim-dominated regions in Mindanao since President Rodrigo Duterte launched his bloody war on drugs last year.

"We saw the emergence of a new threat in the form of violent extremism, a threat that grew and moved quickly through the region, parallel to a new conflict front opened by the (Duterte government)" that disrupted "long-established systems" in the drug trade, it said.

International Alert reported 4,356 incidents of violence on the island last year, up 89 per cent from 2,303 in 2015.

Out of that total, 1,498 were traced to shadow economies - mostly drug trafficking and gun running - more than tripling the previous year's 534.

Where previous illicit drug-related conflicts were a product of deadly turf wars between drug lords, the police-led crackdown is now creating a spike in conflicts "that amounts to a self-created and self-inflicted form of violence", the think-tank said,.

It said a "political economy analysis" of the relationship between shadow economies and violent extremism is needed to set up mechanisms that can weaken factors that strengthen that link.

It warned that unless this is addressed, violent extremism will increasingly feature in the conflicts of the future.

The Maute group is already reported to be rebuilding its forces in its stronghold in Lanao del Sur province.