DAVAO, Philippines (AFP) -- Philippine President Rodrigo Duterte on Saturday branded the bombing of a night market in his home town that killed at least 14 people an act of terrorism, and announced extra powers for the military to combat the threat.

Duterte said there were no confirmed suspects for the attack in the southern city of Davao just before 11:00pm on Friday, although he named two Islamic militant groups and drug lords as the potential culprits.

"We will treat this as a police matter about terrorism," Duterte told reporters early Saturday morning after visiting the site of the bombing in the heart of Davao and close to one of the city's top hotels.

Duterte was in the city at the time of the blast but was not near the market.

At least 14 people were killed and another 67 were injured in the explosion, police said. Sixteen of the injured were in critical condition, a local hospital director told reporters.

"The force just hurled me. I practically flew in the air," Adrian Abilanosa, who said his cousin was among those killed, told AFP shortly after the attack as bodies lay strewn amid broken plastic tables and chairs.

An improvised explosive device caused the explosion, presidential spokesman Martin Andanar said.

Davao is the biggest city in the southern Philippines, with a population of about two million people. It is about 1,500 kilometres from the capital of Manila.

The city is part of the southern region of Mindanao, where Islamic militants have waged a decades-long separatist insurgency that has claimed more than 120,000 lives.

Duterte had been mayor of Davao for most of the past two decades, before winning national elections in a landslide this year and being sworn in as president on June 30.

Duterte became well known for bringing relative peace and order to Davao with hardline security policies, while also brokering local deals with Muslim and communist rebels.

On Saturday morning, Duterte declared a "state of lawlessness", which his security adviser said gave the military extra powers to conduct law enforcement operations normally done only by the police.

When asked who was responsible, Duterte said authorities had been expecting reprisals from the Abu Sayyaf Islamic militant group following a military offensive against it.

The Abu Sayyaf is a small but extremely dangerous group of militants that has declared allegiance to Islamic State and is notorious for kidnapping foreigners to extract ransoms. The group beheaded two Canadian hostages this year.

Duterte last week ordered a major assault against the Abu Sayyaf on its stronghold of Jolo island, about 900 kilometres from Davao. Fifteen soldiers died in clashes with the Abu Sayyaf on Monday.

"I remember warning everybody that there could be a reprisal because of the operation there," Duterte said.

While Davao has been regarded as relatively safe compared with other parts of Mindanao, the Abu Sayyaf and other Islamic militant groups have carried out deadly attacks there in the past.

The Abu Sayyaf claimed responsibility for three bomb attacks in 2005 -- one in Davao, one in a nearby city and a third in Manila -- that killed eight people.

The Abu Sayyaf said it conducted the 2005 attacks in response to an offensive against it at that time.

In 2003, two bomb attacks blamed on Muslim rebels at Davao's airport and the city's port within a month of each other killed about 40 people

However Duterte on Saturday made clear the Abu Sayyaf was not the confirmed culprit, as he named the Maute gang -- another small militant group based in Mindanao that has also declared allegiance to the Islamic State group -- as another suspect.

Duterte also raised the possibility of drug lords carrying out the attack as a way of fighting back against his war on crime.

Duterte has made eradicating illegal drugs the top priority of the beginning of his presidency.

Security forces have conducted raids in communities throughout the country to arrest or kill drug traffickers.

More than 2,000 people have died in the war on crime.

The United States, the United Nations and rights groups have expressed concern about an apparent wave of extrajudicial killings.