Philippine off-grid islands are mostly electrified by diesel generators, resulting in costly electricity that is interrupted by fuel supply disruptions. The archipelagic nature of the country also impedes off-grid electrification due to the high capital cost of grid extension. Transitioning from diesel-only systems to hybrid renewable energy systems and interconnecting the island microgrids can solve these problems while promoting cleaner energy production. In this work, a comparative study on decentralized and clustered hybrid renewable energy system microgrids in the Polillo group of islands in the Philippines, using HOMER Pro, was performed. Microgrids comprising solar photovoltaics, lithium-ion battery energy storage, and diesel generators were designed on each island. Clustered systems encompassing multiple islands in the island group were simulated by also considering the least-cost interconnection paths. The techno-economics of each decentralized or clustered system and the four-island system were evaluated based on the levelized cost of electricity (LCOE). Reliability was assessed using the change in LCOE upon the failure of a component and during weather disturbances. Transitioning from diesel-only systems to hybrid systems reduces generation costs by an average of 42.01% and increases the renewable energy share to 80%. Interconnecting the hybrid systems results in an average increase of 2.34% in generation costs due to the cost of submarine cables but improves system reliability and reduces the optimum solar photovoltaic and lithium-ion storage installations by 6.66% and 8.71%, respectively. This research serves as a framework for the interconnection pre-feasibility analysis of other small off-grid islands.