The hostages were all from Barangay Sta. Barbara.
Lieutenant Colonel Ramon Zagala, AFP public affairs chief, said rescue operations had been ongoing since Wednesday night.
Around 5 to 6 a.m., sporadic firing broke out.
Meanwhile, the Department of Social Welfare and Development said the number of evacuees in the city has gone down from 126,000 to about 99,000.
On Wednesday, schools in areas outside the conflict zone resumed classes.
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