(Adds MILF negotiator quote)

By Jalil Hamid

PUTRAJAYA, Malaysia, Aug 5 (Reuters) - Malaysia called on Tuesday for maintaining peace in the Philippines, as an order by the latter's Supreme Court that halted a deal between Manila and Muslim rebels failed to stop opponents' protests.

The latest setback for peace in the Philippines' volatile south came just a day before the agreement between Manila and the Moro Islamic Liberation Front (MILF), the country's largest Muslim rebel group, was set to be signed in Kuala Lumpur after more than 10 years of stop-start talks.

The MILF insisted the agreement was still binding despite the court order and accused Manila of lacking the capability of entering into a peace pact.

"Our official position is that the agreement on ancestral domain has been signed, so it's a done deal," Ghadzali Jaafar, MILF vice chairman for political affairs, told reporters by phone from his base on Mindanao island in the south.

Jaafar said the court decision to stop the signing ceremony was "purely an internal problem of the government".

"We are not bound by that order," he said. "It's an internal process in the government. What was committed by the government cannot be taken back."

The MILF's chief peace negotiator, Mohaqher Iqbal, said it would "still pursue the peace process to bring an end to the conflict without, however, losing sight of alternative means to achieve freedom and justice."

Under the territorial agreement shelved for now by the court's restraining order, an existing autonomous region for Muslims in the south of the largely Catholic country would be expanded and they would get broad political and economic powers.

Catholic politicians in the south had asked the Supreme Court to halt the signing, arguing they had not been consulted on the deal. They fear it will carve up Mindanao into Muslim enclaves.

DEFENDING THEIR RIGHTS

In Mindanao some 5,000 people, mostly Catholics, in red shirts took to the streets in Kidapawan city in North Cotabato province on Tuesday to protest the deal despite the restraining order. "This is not a fight between the Muslims and the Christians," Rolando Dillera, a local official in North Cotabato province, told the rally.

"But, we Christians are doing what is just right and due us. We'll defend our communities."

The proposed deal was meant to formally re-open negotiations to end a near 40-year conflict that has killed more than 120,000 people, displaced 2 million, and kept the country's most resource-rich region dirt poor.

Malaysian Foreign Minister Rais Yatim, who held talks with his Philippine counterpart Alberto Romulo, called for peace in Mindanao.

"There ought not to be violence," he told reporters in Malaysia's administrative capital Putrajaya. Malaysia has been brokering peace talks between Manila and the MILF. Expressing his disappointment over the halting of the landmark deal, Rais said he hoped that it was a "purely temporary impasse".

"This is a set back which should be overcome soon," he said.

Romulo, who was due to witness the signing but instead held talks with Rais, said the pact was constitutional.

"The memorandum of agreement which was supposed to be signed today is ... within the constitutional authority and within the legal authority," he said.

"We stand by that, that is why we are confident our supreme court will find this to be resolved."

Hermogenes Esperon, peace adviser to Philippine President Gloria Macapagal Arroyo, told reporters Manila would not abandon the peace process.

"Nobody is giving up on peace, we have not given up on peace, we will never give up on peace," he said in Putrajaya. (With additional reporting by Manny Mogato in Manila; Editing by Jerry Norton)

AlertNet news is provided by