Heavy fighting broke out in Sri Lanka's northeast on Thursday when government forces launched artillery and air attacks on Tamil Tiger rebels, the insurgents said.
"They are attacking us on ground and from air," Tiger spokesman Rasiah Ilanthirayan said.
The Defence Ministry in Colombo confirmed that a military operation was on, but gave no details.
Hospital sources in Kantale, a town in the area, said bodies of two soldiers had been brought in and 23 others were wounded.
Military officials in Colombo confirmed the losses, but gave no details.
The fighting centred around Mutur, a seaside area infiltrated by the rebels last week.
The rebels were driven back by the Sri Lankan military after two days of clashes that sent an estimated 30,000 Mutur residents fleeing.
"From dawn today, the Sri Lankan army has launched a full-fledged offensive operation against our territories involving thousands of troops, heavy guns and bombardment," Ilanthirayan said.
Military spokesman Maj Upali Rajapakse said the operations were "defensive in nature."
Earlier, the rebels said at least five Tamil civilians were killed in a renewed government offensive aimed at permanently securing a water source in northeastern Sri Lanka that the rebels blocked last month.
Muttur is not close to the disputed reservoir, and it is unlikely that the new military operations was aimed at securing the water supply.
The crisis over the reservoir and canal in Trincomalee district had sparked some of the worst fighting since the country's 2002 ceasefire, with estimates of the number of combatants and civilians killed ranging from about 100 to 300.
The rebels closed sluice gates at the reservoir on July 20, cutting water to over 60,000 people living in government-controlled villages, after accusing the government of reneging on a pledge to boost water in rebel-held areas.
The rebels announced on Tuesday that they were reopening the gates, saying that heavy attacks on rebel areas by army troops were hurting civilians, and the military reclaimed control of the waterway on Wednesday.
But the government resumed shelling the area around the reservoir the same day, saying it needed to clear the area of rebels so they would not be able to block the water supply again.
A pro-rebel website, Tamilnet, said five civilians were killed Wednesday when the air force bombed nearby areas. The Web site said the victims were fleeing the area to escape the military's artillery attacks.
The Tamil Tigers began fighting in 1983 for a separate homeland for the country's 3.2 million Tamils, accusing the 14 million Sinhalese majority of discrimination.