The assault follows clashes this past week that killed eight Malaysian police officers and 19 Filipino gunmen, including members of a Muslim clan that shocked Malaysia and the neighboring Philippines by slipping past naval patrols last month and storming the obscure village.
The clansmen, armed with rifles and grenade launchers, had refused to leave the area, staking a long-dormant claim to Malaysia's entire state of Sabah, which they insist is their ancestral birthright.
The crisis has sparked worries of a spread of instability in Sabah, which is rich in timber and oil resources. Other armed Filipinos are feared to have slipped into other districts in the area recently.
As dusk approached, many hours after fighter jets were deployed in the morning, national police chief Tan Sri Ismail Omar said police and military personnel were still hunting for Filipinos in an area of about 4 sq km that includes rough terrain and plantation land.
"We believe there are still enemies in the area," Ismail said.
He said authorities "hope they have not escaped," but refused to provide details about any captives or casualties.
Ismail said the ground forces encountered resistance from gunmen firing at them, but Home Minister Datuk Seri Hishammuddin Hussein said no injuries occurred among Malaysian police or military personnel.
Prime Minister Datuk Seri Najib Razak defended the offensive, saying Malaysia had made every effort to resolve the siege peacefully since the group's presence in Lahad Datu became known on Feb. 12, including holding talks to encourage them to leave without facing any serious legal repercussions.
"For our sovereignty and stability, we will not allow even an inch of Malaysian territory to be threatened or taken by anyone," Najib said.
The Filipinos who landed in Lahad Datu, a short boat ride from the southern Philippines, say Sabah belonged to their royal sultanate for more than a century. The group is led by a brother of Sultan Jamalul Kiram III of the southern Philippine province of Sulu.
Abraham Idjirani, a spokesman for the Filipinos, told reporters in Manila that the group would not surrender and that their leader was safe.
Idjirani said he spoke by phone with Kiram's brother, who saw jets dropping two bombs on a nearby village that the group had abandoned.
"They can hear the sounds of bombs and the exchange of fire," Idjirani said. "The truth is they are nervous. Who will not be nervous when you are against all odds?" He said they will "find a way to sneak to safety."
"If this is the last stand that we could take to let the world know about our cause, then let it be," Idjirani said, describing the assault as "overkill."
Malaysian officials said they were taking no chances with public safety, sealing off areas within about 30km (20 miles) of the village and refusing to allow journalists in.
The Philippine government had urged Malaysia to exercise maximum tolerance to avoid further bloodshed.
In Manila, presidential spokesman Ricky Carandang said Tuesday that Foreign Secretary Albert del Rosario was in Kuala Lumpur meeting with his Malaysian counterpart.
"We've done everything we could to prevent this, but in the end, Kiram's people chose this path," Carandang said.
Some in Muslim-majority Malaysia had called for patience in handling the Lahad Datu group. But after the Filipinos fatally shot two Malaysia policemen on Friday and six other personnel were ambushed and killed by other Filipino assailants while inspecting a waterfront village in a separate district on Saturday, the Malaysian government declared the time for talk was over. It became known that one of the policemen was beheaded while two others were tortured.
Philippine President Benigno Aquino III went on national TV twice this past week to urge the Filipino group to lay down its arms, warning the situation could imperil about 800,000 Filipino job seekers in Sabah.
The crisis could have wide-ranging political ramifications in both countries. Some fear it might undermine peace talks brokered by Malaysia between Manila and the Moro Islamic Liberation Front, the main Muslim rebel group in the southern Philippines.
It might also affect voter sentiment in a Malaysian general election that must be held by the end of June.
Najib needs strong support from voters in Sabah to fend off an opposition alliance that hopes to end more than five decades of federal rule by his Barisan Nasional coalition.