MANILA, March 8 (Reuters) - Muslim rebels fired a barrage of mortar shells on a government position in the southern Philippines, two days after they pulled fighters away from a conflict area, an army spokesman said on Thursday.

Lieutenant-Colonel Julieto Ando said two of the 81mm mortar shells landed near an army base but did not cause any casualties or damage. The shelling at dawn on Thursday destroyed a number of houses in a community in Midsayap.

"They wanted to get even after losing heavily in a gunbattle early this week," Ando told reporters, adding troops were bracing for more retaliatory attacks from the Moro Islamic Liberation Front (MILF).

Nearly 20 soldiers and rebels were killed during overnight fighting on Monday in three farming villages in Midsayap due to a land dispute. The renewed fighting threatens peace talks to end nearly 40 years of conflict that have killed more than 120,000 people.

Ando said about 5,000 people who had fled the fighting on Monday have refused to return to their farms and homes after the mortar attack, fearing fresh gunbattles could erupt anytime as rebels try to avenge the death of 17 fighters in Monday's battle.

Peace talks, brokered by Malaysia, have been stalled since May 2006 over the size and wealth of an ancestral homeland for 3 million Muslims in the south of the mainly Roman Catholic country.

Eid Kabalu, MILF spokesman, denied rebels had fired mortar rounds into government positions in Midsayap, saying the MILF will remain in defensive positions and would cooperate in any inquiry into how the fighting started in Midsayap.

"Tension remains high in the area," Kabalu said. "There's no guarantee fighting in the area will stop unless soldiers completely leave the area."

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