The Sri Lankan navy has said it has attacked 25 Tamil Tiger rebel boats off the eastern coast of the country, killing up to 70 separatists.
Clashes between Sri Lankan forces and Tamil Tigers have multiplied
The navy said it had sunk at least 11 boats after the five-hour sea battle.
Five Sri Lankan sailors were reportedly injured. The Tamil Tigers told the BBC only three rebels had died and denied that any boats had been damaged.
Sri Lanka's 20-year civil war escalated in late July. Hundreds of people have been killed in violence this year.
The sea battle reportedly took place about 80km (50 miles) north of the strategic harbour of Trincomalee.
After intercepting the boats travelling south, Sri Lankan forces said they had attacked the vessels by air and then using sea craft.
"Eleven boats were sunk, and about 70 cadres were killed," police chief Percy Perera said.
He added that he believed a top Tiger naval commander was killed or injured during the clash.
A military spokesman, Brigadier Prasad Samarasinghe, said the boats were carrying weapons and men, presumably to reinforce their bases along the east.
Tamil Tigers military spokesman Rasiah Ilantherian said two Sri Lankan navy ships had been damaged, one of them badly, but that all the rebel boats had returned safely.
Our correspondent in Colombo, Dumeetha Luthra, says the development is another setback for the Tamil Tigers.
Since the rebels lost the strategic town of Sampur on the southern edge of the Trincomalee harbour, their bases in the east have in effect been cut off from their northern stronghold, she says.
The clash, which appears to be an attempt by the rebels to try and recapture Sampur, follows a pattern of escalating violence and comes after more than 100 rebels were killed in two sea battles earlier this month.
The latest tension has caused Muslims, who just returned to the neighbouring town of Muttur, to once again flee their homes.