Malaysia said clashes between intruding Filipino militants and its security forces had left 60 people dead as of late Thursday, as it rejected a ceasefire offer from the fighters' leader.
Police chief Ismail Omar said 32 followers of a self-proclaimed Philippine sultan had been killed in two confrontations since Wednesday near the scene of a three-week standoff in Sabah state, after a military assault to dislodge them.
That brought the total dead to 60, including 52 militants. Eight Malaysian policemen were killed in skirmishes last weekend.
Troops and police are currently hunting the Islamic militants in a remote region of Borneo island, where they landed last month to assert a long-dormant territorial claim in what has become Malaysia's worst security crisis in years.
A spokesman for their Manila-based leader, who called for a midday ceasefire, said 235 people including eight women took part in the original incursion.
Prime Minister Najib Razak, who flew to the region Thursday to inspect security operations, said he told Philippine leader Benigno Aquino by phone the ceasefire offer was rejected.
"I told President Aquino they must lay down their arms immediately," Najib told reporters in a village near where the army and police were searching for scores of militants.
"They have to surrender their arms and they have to do it as soon as possible."
The "sultan", Jamalul Kiram III, declared a unilateral ceasefire for 12:30 pm (0430 GMT) and urged Malaysia to reciprocate.
But Najib said Malaysian forces would press on with the offensive, sending more soldiers into the hilly region of vast oil palm estates and pockets of jungle.
Anger has mounted in Malaysia over the incursion, which began February 12 when fighters arrived from the southern Philippines to press Kiram's claim to the area.
Kiram says he is heir to the Sultanate of Sulu, which once ruled islands that are now part of the southern Philippines as well as Sabah.
The main group of militants was holed up in the sleepy farming village of Tanduo for three weeks until two deadly shootouts with security forces at the weekend triggered a military assault to dislodge them.
The attack scattered the fighters and security forces were combing through huge oil palm groves for them.
UN Secretary General Ban Ki-moon urged a peaceful resolution of the bizarre incursion.
"(Ban) urges an end to the violence and encourages dialogue among all the parties for a peaceful resolution of the situation," said a statement released by his office late Wednesday.
Kiram declared the "unilateral ceasefire... in order to reciprocate the call of the UN to preserve lives", his spokesman said.
Tension is running high in eastern Sabah due to the incursion. Residents of some towns have fled after police said gunmen were spotted in other areas down the coast, raising fears of a wider guerrilla infiltration.
Late Wednesday police said the bodies of six police officers killed in a weekend ambush in the coastal town of Semporna were mutilated.
"The bodies of dead police personnel were found to have been brutally mutilated by the armed intruders," a statement said, giving no further details.
Police have said six militants responsible for the ambush were later killed.
The incursion has created a delicate situation for the two neighbours, with Manila earlier calling for Malaysian restraint just before Tuesday's military assault was launched.
Malaysian Foreign Minister Anifah Aman said late Wednesday that his government might seek Kiram's extradition if Manila failed to take action. But the Philippine government said that was unlikely, citing the lack of an extradition treaty.