Understanding the physics of phase-separation between solid and fluid phases as a mixture mass moves down slope is a long-standing challenge. Here, we propose an extension of the two phase mass flow model (Pudasaini, 2012) by including a new mechanism, called separation-flux, that leads to strong phase-separation in avalanche and debris flows while balancing the enhanced solid flux with the reduced fluid flux. The separation flux mechanism is capable of describing the dynamically evolving phase-separation and levee formation in a multi-phase, geometrically three-dimensional debris flow. These are often observed phenomena in natural debris flows and industrial processes that involve the transportation of particulate solid-fluid mixture material. The novel separation-flux model includes several dominant physical and mechanical aspects such as pressure gradients, volume fractions of solid and fluid phases and their gradients, shear-rates, flow depth, material friction, viscosity, material densities, topographic constraints, grain size, etc. Due to the inherent separation mechanism, as the mass moves down slope, more and more solid particles are transported to the front and the sides, resulting in solid-rich and mechanically strong frontal surge head, and lateral levees followed by a weaker tail largely consisting of viscous fluid. The primary frontal solid-rich surge head followed by secondary fluidrich surges is the consequence of phase-separation. Such typical and dominant phase-separation phenomena are revealed for two-phase debris flow simulations. Finally, changes in flow composition, that are explicitly considered by the new modelling approach, result in significant changes of impact pressure estimates. These are highly important in hazard assessment and mitigation planning and highlight the application potential of the new approach.