* Duterte 'prize' of a million pesos for catching convicts
* Says 'dead or alive', but dead may be 'a better option'
* Remark shouldn't be taken literally - justice minister
* Violent offenders freed in corrections bureau blunder
* 'He throws grenades' - Duterte defends new prisons boss (Adds justice secretary comment paragraph 7-9)
MANILA, Sept 18 (Reuters) - Philippines President Rodrigo Duterte has offered big bounties for hundreds of convicted murderers and rapists set free in a corrections bureau blunder - and said he would be happier if they were caught dead rather than alive.
The release under a good-behaviour reward programme of more than 1,700 criminals guilty of mostly violent offences has been a huge embarrassment for a crime-busting leader elected almost entirely on promises to make the streets safer.
Duterte said there was a "prize" of a million pesos ($19,175) for tracking down each convict still at large, after less than 700 of them heeded his call for their surrender.
"The one million prize is available to those who can capture them dead or alive. But maybe dead would be a better option. I will pay you smiling," he told reporters late on Tuesday.
Duterte is a former mayor and prosecutor who boasted he would kill as many as 100,000 criminals if be became president. Since his election he has become known for a bloody "war on drugs" during which police have killed thousands of mostly urban poor dealers and users. Activists say many of the killings were executions, but police deny this.
His latest remarks are likely to outrage opponents who accuse him of deliberately inciting vigilantism. His office rejects that and says his tough talk is endearing him to millions of Filipinos.
However on Wednesday, Justice Secretary Menardo Guevarra appeared to row back from Duterte's bounty offer.
"'Dead or alive' should not be taken literally," he said.
"Law enforcers are supposed to effect peaceful arrests, but they may use reasonable force if the subject of the arrest violently resists."
The good conduct law was passed under Duterte's predecessor to try to reduce the populations of some of the world's most crowded jails.
More than 21,000 inmates were released, but justice department officials say more than 2,000 of them were sentenced for crimes like rape, drugs, murder, bribery, plunder, kidnapping and arson, and were therefore not eligible for release.
Some 1,700 of them were freed by a corrections bureau run by Duterte's appointees, two of them staunch loyalists. One of them, Nicanor Faeldon, was sacked after it emerged that nearly 900 serious offenders were freed on his watch. Faeldon denies wrongdoing.
Duterte defended the appointment on Tuesday of a new corrections bureau boss - a prison chief for whom prosecutors have sought homicide charges.
Gerald Bantag ran a Manila jail where in 2016, a grenade explosion killed 10 inmates, most of them drug offenders. A court has yet to take up the case.
"I don't think that he did it. If he did, then he might be convicted," Duterte said.
"But in the meantime, I like him because I heard he throws grenades," he added. (Reporting by Martin Petty and Karen Lema; Editing by Pravin Char)
Our Standards: The Thomson Reuters Trust Principles.