MANILA (AFP) - An Islamic militant listed by the United States among the "most wanted" terrorists in the world was arrested in the Philippine capital on Wednesday, the police said, after a manhunt lasting years.

Khair Mundos, who has a bounty of half a million dollars (S$624,725) on his head from the US government, was arrested in a Manila suburb, a police statement said.

The US State Department describes him as a "key leader and financier" of the Abu Sayyaf, a Filipino Islamic extremist group.

The group, founded with seed money from Al-Qaeda mastermind Osama bin Laden, has carried out bombings and mass kidnappings, often targeting foreigners and Christians who they hold for ransom.

Mundos was previously captured in the troubled southern Philippines in 2004 but escaped from a provincial jail in 2007.

Since then, security forces had been hunting for him in the south, where the Abu Sayyaf is based.