By Manny Mogato

MANILA, Aug 31 (Reuters) - Philippine soldiers will continue with an offensive against Muslim rebels in the south of the country through the holy fasting month of Ramadan, the country's new defence chief said on Friday.

Gilberto Teodoro, a three-term lawmaker who took over the defense department this month, also said two more battalions would be deployed on the islands of Basilan and Jolo, where around 100 people have been killed in fighting since mid-July.

"As a policy, we cannot stop the operations," Teodoro told foreign correspondents on Friday, adding it would be up to commanders to consider cultural sensitivities when deciding to attack.

Muslims across the globe pray and fast for a month during the Ramadan period starting on Sept. 13.

More than 10,000 soldiers of the largely Catholic country have been fighting about 300 Islamic militants on Jolo and Basilan.

Manila says that its troops are engaging members of the Abu Sayyaf, a small radical group linked to al Qaeda.

But two larger separatist groups; the Moro Islamic Liberation Front (MILF), which has a truce with the government, and the older Moro National Liberation Front (MNLF), which signed a peace deal in 1996, have said their cadres were involved and have accused the military of provocation.

Because of deep clan loyalties on Jolo and Basilan, lines between different rebel groups are often blurred.

Teodoro, a lawyer by profession, said the army offensive was "controlled and limited" to preserve peace talks with the MILF.

"There's no all-out war against the Abu Sayyaf. We have been constantly reviewing our tactics to avoid escalating the conflict and potential spillovers and bigger collateral damage," he said.

There have been no clashes since a brief skirmish on Monday night on Basilan but troops have been pounded Abu Sayyaf positions with mortars, killing two rebels.

Two army engineering battalions will be deployed on Sept. 5 to Basilan and Jolo to assist about 20,000 people displaced in the fighting.

Although the military has been pouring more resources into the fight against Islamic militants, Teodoro said the government still considers communist rebel group the New People's Army (NPA) the biggest long-term security threat.

Unlike the Muslim insurgency, which is only in the south of the country, the 7,000-member NPA is dispersed across 69 of 81 provinces and regularly engages soldiers and police in tit-for-tat attacks.

Earlier this week, the NPA's founder Jose Maria Sison was arrested on murder charges in The Netherlands and Teodoro said his arrest would weaken the movement and could force its leaders to return to the negotiating table.

Left-wing rebels threatened on Wednesday to terminate long-stalled peace talks with Manila after Sison's arrest.

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