MANILA, March 27 (Reuters) - The Philippines' most notorious Islamic group has freed the principal of a Roman Catholic school on a remote southern island after two months of captivity, police said on Thursday.

Abu Sayyaf rebels kidnapped Omar Taup and shot and killed a Roman Catholic priest in raid on Tawi-tawi island on Jan 16. Taup was left at a public market on a nearby island more than a week ago, Wainwright Taup, police chief in Tawi-tawi, told reporters.

The two men are not related.

"Taup was very sick when we found him on March 17," the police chief said, adding he was taken to a private hospital in Zamboanga City where he was still recovering.

The freed captive, a Muslim, was principal of the Catholic- run Notre Dame school on Tawi-tawi.

Police chief Taup said the victim's family paid a "board and lodging" fee to secure his release from the Abu Sayyaf rebels.

He did not specify the amount but army and police intelligence officials claimed at least 200,000 pesos ($4,790) was paid.

Taup's captors had initially demanded 1 million pesos but cut the price during negotiations.

The Philippines is a largely Catholic country, but some members of the Muslim minority in the south have been fighting for decades for some measure of self-rule.

The Abu Sayyaf, which is entrenched on the islands of Jolo and Basilan, has been blamed for the country's worst terrorist attack, the bombing of a ferry near Manila Bay in 2004 that killed more than 100 people.

It traditionally relies on ransom from kidnappings to fund its operations and has decapitated some of its captives in the past. (Reporting by Manny Mogato; Editing by Raju Gopalakrishnan)

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