Sri Lanka's Navy destroyed a suspected Tamil Tiger boat and damaged another off the island's northeast coast before dawn on Monday killing around 10 rebels, officials said.
The rebel boat sank around 40 km north of the strategic northeastern harbour of Trincomalee, and sailors found what they believe to be the remains of a slain suicide bomber in the damaged boat.
"The Navy detected two boats at around 4:30 in the morning (2300 GMT Sunday) ... and we have engaged in the sea and from land," said Navy Spokesman Commander DKP Dassanayake.
"We have destroyed one boat and recovered another fitted with weapons."
It was not clear how many people were aboard the boats, but Dassanayake said he suspected around 10 Tamil Tigers were killed and the Navy was scouring the sea for bodies.
Officials said the corpse of one female fighter had been recovered from the water so far. The Tigers were not immediately available for comment.
The incident comes a fortnight after the navy sank three suspected Tiger craft off the main harbour in the capital, Colombo.
Emboldened by the capture of a key Tiger stronghold south of Trincomalee harbour, Sri Lanka's government has vowed to go on the offensive to destroy the rebels' entire military machine in the belief it can finally win the war.
Britain warned on Monday against further war, saying Sri Lanka's reputation was at stake and that its own experience in Northern Ireland showed there could be no military solution to the conflict.
"If things continue as they are the current escalation of the conflict and its impact will hold back Sri Lanka's development, corrode the quality of its democracy and tarnish its image in the international arena," British foreign office minister Kim Howells said in a statement ahead of a trip to the war-torn island this week.
"Our experience tells us that a 'war for peace' approach inevitably means more war, rather than peace," he added. "You must — if you wish to move towards a lasting peace — be willing to address the underlying cause of the conflict."
More than 67,000 people have been killed in Sri Lanka since the conflict erupted in 1983 — around 4,000 of those in the last year.
Abductions, murders, ambushes and rights violations are now commonplace and both the government and the Tigers have ignored repeated international community calls to halt violence that has displaced around 200,000 people in the past year.
An international panel is visiting Colombo to oversee a probe into a host of unsolved murders, abuses and disappearances — including the slaughter of 17 aid workers who international truce monitors have accused the security forces of killing.