At least four crew members on board the naval patrol vessel were injured in an exchange of fire with the freighter, the navy said in a statement posted on the military Web site.

The Tamil Tiger rebels reacted angrily to the sinking, warning the incident would have ''far reaching implications'' for the ongoing peace process.

In a letter to Sri Lanka - Defense Minister Tilak Marapona, S.P. Tamilselvan, head of the LTTE political wing, denied that the freighter was engaged in any illegal activity.

Tamilselvan said the ship was in international waters off the eastern port of Trincomalee when the incident occurred. Eleven crewmen on board, including the ship's captain, were killed in the naval action, he said.

The navy said it had received ''credible'' information on Sunday that a rebel ship carrying ''warlike material'' was approaching the Mullaitivu coast ''with the objective of unloading weapons at mid-sea onto small boats.''

A naval vessel on routine patrol was deployed to investigate. The suspect vessel, conforming to the intelligence received, flew no flag nor displayed a name on its bow, the navy claimed.

''On being challenged on the international maritime communication channel, the responses received were vague and contradictory,'' the statement said.

It said it ordered the suspect vessel to stop but this was ignored and the rebel craft ''began to take evasive action and attempted to escape.''

The navy said its craft approached the suspect ship at close range to prevent this when it was fired upon, damaging the bridge of the naval craft and injuring one officer and three crew members.

''Our patrol craft took retaliatory action in the exercise of the right of self-defense,'' it said, adding the action was intended to protect the country's ''vital interests involving its sovereignty and territorial integrity.''

Scandinavian cease-fire monitors policing the truce between the Sri Lanka - government and the LTTE said both sides had brought the incident to their notice.

''This is a very serious matter,'' a spokesman for the monitors said. ''One of our people are traveling to the scene on board another naval craft that set off from the eastern Trincomalee base.'' Published: Mon Mar 10 14:49:23 EST 2003