Filter rods of predetermined length are placed in a hopper and fed to a slitting drum. This drum contains flutes divided into four groups, two of which are separated and their flutes are open whereas the other two groups of flutes are closed. The rods are received in the open flutes and there they are cut by a series of rotary knives into equal sections to provide filter plugs. The adjacent group of closed flutes in the path of rotary travel of the drum permits the cut filter plugs to be directed to a bagging station at which they are enclosed in a bag before the next group of cut filter plugs are permitted to pass through to the bagging station. As the cut filter plugs leave the slitting drum, they are directed into a funnel which has associated therewith a gate. The gate closes off the base of the funnel until the preceding group of cut filter plugs are completely enclosed in a bag. Thereafter, the hate is opened to permit the collected plugs to pass through to the bagging station. At this station a web of heat sealable wrapping material is fed into a tube former which forms the wrapping material into a tube which extends vertically. A heat sealer seals the overlapped marginal side edges of the tube of wrapping material. A pair of opposed and reciprocal heat sealers operates to heat seal and close the lower end of the tube at which the group of cut plugs collect. When the predetermined number of cut filter plugs is collected, the pair of reciprocal heat sealers are reciprocated to heat seal and close the tube above the group of collected plugs. This upper heat sealed zone is cut along an intermediate section to thereby produce a severed bag of filter plugs and at the same time provides the heat sealed and closed lower end of the next bag to be formed. The filled and severed bags are then permitted to drop and be collected in a suitable receptacle.