Sri Lankan troops and Tamil Tigers traded rocket and mortar fire on Monday, a day after the army captured an irrigation tank from the rebels in the troubled northeast, military officials said.
Multi-barrel rocket launchers were being used against the Liberation Tigers of Tamil Eelam (LTTE) surrounding the Maavilaru irrigation tank which security forces wrested from rebel control on Sunday, officials said.
The defence ministry said the attacks were aimed at ending the Tiger blockade of the Maavilaru waterway that had deprived thousands of farmers of water in the Trincomalee district.
"The area is mined, so we need to move slowly to open the sluice gates," government defence spokesman Keheliya Rambukwella said.
Military officials in the area said Tiger rebels were retaliating with mortar bomb attacks, but there were no immediate reports of casualties on either side.
"The security forces are currently engaged in a limited operation with a clearly defined objective of securing water supplies to the civilian population," the defence ministry said in a statement on Saturday.
Backed by artillery and four days of air strikes, security forces moved to the Maavilaru water reservoir on Sunday, Rambukwella said.
Air strikes between Wednesday and Saturday killed at least 15 rebels, but the government maintained it was not a return to full-scale war.
The violence, part of an escalation between the rebels and troops, erupted after presidential elections in November 2005 and led to some of the Nordic countries monitoring a ceasefire in place since 2002 to withdraw.
The LTTE has demanded that observers from European Union members Finland, Denmark and Sweden leave the island after the EU added it to a list of "terrorist" organisations in May.
That would leave only Norwegian and Icelandic monitors.
Finland and Denmark announced on Friday they would pull out by the end of August. Sweden has yet to announce its position.