At least fifty civilians were killed on Thursday by aerial bombardment and artillery shelling of areas controlled by the LTTE in the Eastern district of Trincomalee, according to the LTTE.
But the Sri Lankan army said that only specified targets relating to the LTTE were hit.
If there were civilian casualties, it was only because the LTTE was using them as a shield, the army pointed out.
The areas shelled and bombed on Wednesday and Thursday were Mutur-East in Trincomalee district, and the Verugal river, on the border with Batticaloa district in the south.
"Sri Lankan ground troops are moving from the Mavil Aaru dam to Mutur East," the LTTE's media spokesman Thaya Master told Hindustan Times over phone from Kilinochchi.
"Heavy fighting is going on," he added.
Army blames LTTE
The Sri Lankan army spokesman Brig Athula Jayawardene blamed the LTTE for starting the fight and said that the terrorists had fired 122 mm artillery and mortars at Sri Lankan troops.
"We returned the fire with assistance from the Air Force," he said.
Asked if the area of operations was the Verugal river or the Kathirveli area, as stated by the LTTE, Brig Jayawardene said that he would not be able to pinpoint the area, but could state that the LTTE was moving its heavy guns on the coastal road, and the Air Force had targeted them.
Five refugees killed in bombing
Five Tamil refugees were killed by aerial bombardment on Wednesday when they were crossing the river Verugal, Tamilnet and other pro-Tamil websites said.
The refugees were fleeing from Mutur and Eachchilampattu in Trincomalee district, to Vaharai in Batticalao district.
They were fleeing because there was a severe shortage of food, medicine and shelter in the camps in the Tamil areas affected by the on-going military confrontation between the government forces and the LTTE.
Army denies inflicting civilian casualties
Brig Jayawardene denied that the Air Force or the artillery had inflicted civilian casualties.
"We take on only specific military targets," he asserted.
"The LTTE, however, uses civilians as a shield. It used Muslim civilians in Mutur," he recalled.
According to some observers, the current battle is aimed at securing Mutur East and Sampur from the LTTE, in order to safeguard the Trincomalee harbour across the Koddiyar Bay.
Trincomalee harbour is necessary for the Sri Lankan armed forces because it is from there that an estimated 40, 000 troops stationed in Jaffna in the north, are supplied.
Men and material have to be transported by sea from Trincomalee to Kankesanthurai or Point Pedro in the Jaffna peninsula, if they are in large numbers or quantities.
Sea movement is imperative because there is no secure land route between Vavuniya and Jaffna.
The former Main Supply Route (A-9 national highway) passes through the LTTE-controlled Mullaitivu and Kilinochchi districts, which are now out of bounds.
Importance of Trincomalee for India
Trincomalee is strategically important for India too.
It has taken the giant World War II oil tanks on lease and is refurbishing them.
Though the oil tanks are situated in China Bay in a fairly secure place, it could come under fire from the LTTE, strategic analysts in Colombo fear.
Verugal's importance for holding on to Batticaloa
To hold on to Batticaloa district, further south on the East coast, the Sri Lankan army would have to control the Verugal river.
The importance of Verugal could be gauged from the fact that in April 2004, the LTTE led by Prabhakaran, was able to crush a revolt led by his Batticaloa commander Karuna, because he was able to use Verugal to mount an amphibian operation and land his troops.
LTTE's objectives The LTTE is fighting to keep Mutur-East and Sampur, and secure the Verugal river area.
Mutur-East and Sampur are necessary to dominate the Trincomalee harbour.
According to defence analyst Iqbal Athas of The Sunday Times the LTTE has been on a project to encircle the Trincomalee harbour and naval base since the Ceasefire Agreement (CFA) was signed in February 2002.
It had set up new camps for this purpose, and moved in artillery from the Wanni region, he contends.
From a larger political angle, Trincomalee is vital for the LTTE as it is the capital of a putative "Tamil Eelam", which the militant group has been fighting to establish since the mid 1970s.
The current violent conflict, which began over the blocking of the waters of the river Mavil Aaru by the LTTE on July 20, has a huge and tragic humanitarian dimension.
Muslim and Sinhala refugees from Mavil Aaru and Mutur town are said to number 35,000 or 40,000.
The Tamil press says that the shelling and the aerial bombardment of Tamil areas like Mutur-East, Sampur, and Verugal have created a displaced Tamil population of 30,000.
There is a tremendous shortage of food, medicines and shelter.
Aid workers fear that more people of all ethnic groups may join the ranks of the displaced and the fleeing in the days to come, thanks to the continuing military operations.