Terrorist group Abu Sayyaf has beheaded the last Malaysian hostage it kidnapped from a Sandakan restaurant in May this year, according to Singapore's Straits Times.

Bernard Then was beheaded just hours after Prime Minister Najib Razak landed in Manila for the two-day summit of the Asia-Pacific Economic Cooperation forum.

The paper's portal quoted Philippines Joint Task Group Sulu Commander Brigadier-General Alan Arrojada as confirming that Then, 39, an engineer, was beheaded at around 4pm in the Abu Sayyaf stronghold of Jolo, Philippines.

The beheading came just after a week after Abu Sayyaf released another Malaysian hostage, Thien Nyuk Fun, the Ocean King Seafood Restaurant (photo) manager who was kidnapped along with Then.

The report said Then had suffered leg injuries while in captivity and had been slowing down his captors.

It added police had identified the leaders of the group behind the kidnapping to be Alhabsy Misaya, Alden Bagade and Angah Adji.

Thien was freed on Nov 8 after spending almost six months in captivity.

Deputy Prime Minister Ahmad Zahid Hamidi denied that any ransom was paid but The Straits Times claimed Thien was freed in exchange for a 30 million pesos (RM7.85 million) ransom.

'Released soon'

Zahid had on Monday said the government was working to secure Then's freedom.

“We believe if the captors are generous to not impose strict conditions, then the other victim will be released soon,” he said.

On May 15, militants from the southern Philippines launched a daring incursion into Sabah.

Four men armed with automatic rifles grabbed Thien and Then from the restaurant at around 7.40pm before fleeing back into Philippine waters on two boats.

In an immediate response, Sandakan MP Stephen Wong condemned the beheading and described it as an ‘act of war by the IS of Southeast Asia’.

"I'm deeply saddened to hear about this tragedy. I extend my deepest condolences to the friends and families of the victim," he said.

Wong noted that the Asean summit will commence in Kuala Lumpur tomorrow and urged for Sabah's security to be discussed as it is a regional issue.

"Our prime minister should immediately demand for the Philippines take stern action against the terrorists who are actively involved in kidnapping and terrorism activities in the southern Philippines.

"Abu Sayyaf is like the IS of Southeast Asia," he said.