Nineteen army personnel men and civilians were killed when the bus in which they were travelling was blasted by a claymore mine at Serunuwara in Trincomalee district on Monday, reports from Trincomalee town said.
But the army said that 16 soldiers were dead.
The ill-fated troops were returning to Kantalai after the army assault on the Mavil Aaru dam was stalled by the LTTE's fierce resistance, Tamil sources said.
The bus had 15 soldiers and four civilians. And the blast took place at 10.30 pm.
According to informed sources in Trincomalee, the attacking troops had not even gone 500 metres from the nearest camp, when they came under heavy mortar and small arms fire.
The dam area had also been heavily mined.
Eventually, the troops had no option but to return to their camps.
There were no reports of operations on Tuesday till mid-day.
It is now suspected that the LTTE was prepared for the current series of air and land operations codenamed "Operation Watershed."
The Head of the Nordic truce monitors, Maj Gen Ulf Henricsson, said on Monday, that the LTTE might have closed the sluice gates of the Mavil Aaru dam only to invite such a reaction from the government.
The LTTE was thus prepared for a war and had heavily mined the area.
However, the Sri Lankan forces will have to capture the dam as it is a prestige issue for the government of President Mahinda Rajapaksa which had touted it as a "humanitarian operation" and not a "military operation" meant to give water to 15, 000 families of farmers cultivating 30,000 acres of paddy.
"We are determined to achieve the objective," said the government's defence spokesman, Keheliya Rambukwela.
Water not the real concern: Truce monitor
The head of the truce monitors, Gen Henricsson, said that the concerns of the two parties were political rather than military.
If securing water or opening the sluice gates of the dam was the main consideration, the Air Force need not have bombed the Sea Tigers base in Ilakkantai, he said.
Also, it need not have bombed the LTTE's conference centre in Karadiyanaaru in Batticaloa district.
A Western diplomat said: "If water was the issue and the dam had to be taken, the best way would have been to send copter-borne commandoes to secure that place in one swift operation and get out."