Sri Lanka's navy sank 11 Tamil Tiger vessels and killed dozens of rebels in a fierce five-hour battle overnight, the military said today.
The violence comes a fortnight after the two sides agreed to resume peace talks to halt renewed civil war.
The navy believes a top Tiger naval commander was killed or injured during the clash at sea around 50 miles north of the strategic northeastern harbour of Trincomalee - one of the most serious naval battles since a 2002 ceasefire that now lies in tatters.
"There were 25 Sea Tiger boats sailing south. Eleven boats were sunk, and about 70 cadres were killed," said a naval official, adding five navy sailors were hurt in the clash.
The Liberation Tigers of Tamil Eelam were not immediately available for comment. The incident comes days after a suspected rebel activity threatened a offensive to recapture recently lost territory on the southern lip of Trincomalee harbour.
However, the Tigers have denied any involvement in the distribution of leaflets warning residents to leave immediately ahead of a rebel offensive.
Thousands of Muslims driven away by fighting in August have fled their homes for the second time in as many months in the wake of the threat, and aid workers say the military is preventing thousands more from leaving the area.
The Tigers and the government have told peace broker Norway they are prepared to meet for talks after a five-month deadlock to end a new phase of civil war that has killed hundreds of civilians, troops and rebels since late July.