He made the remarks at a mammoth gathering hosted by the country's main Muslim guerrilla group, the Moro Islamic Liberation Front (MILF), but which has also brought together Christians, rival Muslim factions and tribal groups from the southern region of Mindanao.
Since the 1970s, Muslims have been waging a rebellion seeking autonomy or independence in the southern areas of the mainly Catholic Philippines that they regard as their ancestral homeland.
The conflict has claimed more than 120,000 lives and left large areas of Mindanao in poverty.
Duterte, who boasts of having Muslim ancestry, warned that the region could see worse violence if the issue is not resolved.
"What is at stake here is the preservation of the Filipino republic and to correct historical injustice," he said.
Duterte said that during the decades when the Philippines was under Spanish and then American colonial rule, the Christian majority had taken control of vast parts of Mindanao, leaving native Muslims and other tribes marginalised.
He also warned that the violence could be exacerbated if Islamic State followers flee to the Philippines after losing their bases in the Middle East.
Islamic State threat
Duterte's warning came just a month after the foreign and local IS supporters who ravaged Mindanao's main Muslim city Marawi were defeated in October, ending a five-month conflict which left about 1,100 people dead.
The 10,000-strong MILF signed a peace deal in 2014 that would give the nation's Muslim minority self-rule over parts of Mindanao, but the proposed law to implement the pact has not managed to get through Congress.
The immediate objective of Monday's rally was to build support for the proposed law.
Duterte said he would work for the law's passage, even calling Congress to a special session where Muslim leaders could explain their plans to the legislators.
Such an agreement must be "inclusive" and acceptable to all groups in Mindanao, he added.
Speaking at the event, MILF chairman Murad Ebrahim recalled that many of those attending had fought in the Muslim guerrilla wars in decades past.
But he said they are now pushing for the autonomy law, stating "it presents us the rare opportunity to be part of the noble endeavour of peace-making".
Hundreds of thousands of people attended the gathering at the main MILF base where a festive mood prevailed despite the history of conflict.
The MILF previously said half a million had registered to attend.
Unarmed MILF fighters accompanied by armed government soldiers and policemen secured the event, which was attended by Cardinal Orlando Quevedo -- the archbishop of Cotabato and Mindanao's highest Catholic Church official -- as well as members of the MILF's main rival, the Moro National Liberation Front.
"The importance here is that there is coexistence between Christians, Muslims and Lumads (tribal people)," said Carlos Sol, director of the government's coordinating committee overseeing the peace accord.
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