Fighting erupted when nearly 20 boats from the Tamil Tigers' sea wing headed toward the navy-guarded harbor in Point Pedro off the Jaffna peninsula, said Commander D.K.P. Dassanayake, a navy spokesman.

He said the Sri Lankan-owned cargo ship, called the ``City of Liverpool,'' was leaving Point Pedro harbor when it came under attack by the insurgents' boats. Navy troops on board the ship retaliated.

``Two of their boats were destroyed in the battle and ship is also damaged,'' he said, adding that the navy suffered no casualties. He said ship's crew had been rescued by the navy.

``The ship was leaving after unloading flour for the use of people in Jaffna,'' said Dassanayake.

People in the ethnic Tamil heartland of Jaffna peninsula depend on food transported by ships, as the key highway that connects Jaffna with the rest of the country remains closed due to a spike in violence.

The A-9 highway was closed by the military in August after the Tigers attacked a military checkpoint and killed several soldiers. The military has said the move was necessary to stop rebels from transporting weapons and fighters into government-held areas.

Nearly 500,000 Tamil civilians have been cut off from vital supplies since the highway's closure.

There was no immediate comment from the rebels, but the pro-rebel TamilNet Web site confirmed the incident, without giving details.

The sea battle came as the military said on Sunday that at least 40 rebels were killed in clashes with government troops who routed several major rebel bases in the volatile east.

The military said the army would continue to flush out rebels in the rest of the east, where both sides hold pockets of territory.

The Tigers have been fighting for more than 20 years for a separate homeland for the country's 3.1 million ethnic minority Tamils, who have suffered decades of discrimination by the majority Sinhalese.

Although both sides claim to be adhering to a Norwegian-brokered 2002 cease-fire, violence has escalated since late 2005 with more than 3,600 people killed last year alone. Discuss this story Published: Sun Jan 21 08:58:34 EST 2007

In the north, a fierce sea clash broke out after about 20 rebel boats attacked a cargo ship, the military said. Navy ships backed by air fire destroyed three of the rebel boats, killing at least six insurgents, Navy spokesman Commander D.K.P. Dassanayake said.

Fighting between the Tigers and security forces has escalated in the last few months as the government stepped up attempts to flush insurgents from parts of the northeast, where they want to establish an independent Tamil homeland.

Army troops killed at least 18 Tamil Tigers in fighting as they tried to flee into a rebel-held jungle in eastern Batticaloa district on Sunday morning, said military spokesman Brig. Prasad Samarasinghe.

Separately, he said troops found the bodies of 22 rebels, victims of an army assault on Saturday on several rebel bases in Kathiraveli, another rebel-stronghold in Batticaloa.

Samarasinghe said insurgents are fleeing from government forces after the army captured Vaharai and Kathiraveli, both rebel strongholds in Batticaloa district _ and the scene of heavy fighting between government troops and the rebels over the last few weeks.

``They are fleeing into pockets held by them in the jungle, specially to Thoppigala,'' Samarasinghe said referring to another eastern rebel area.

There was no immediate comment from the rebels, as phone calls went unanswered.

The rebels have been fighting since 1983 for a Tamil homeland in the north and east of the Sinhalese-dominated tropical island nation off the tip of India. A 2002 truce collapsed into large-scale fighting last year, although it still holds on paper.

For the first time in 11 years, the army on Saturday took control of a main road along the east coast connecting its two main towns, Batticaloa and Trincomalee.

The cities have remained under government control, but the rebels dominated the surrounding villages and jungle.

Vaharai, an impoverished rebel-held coastal strip in Batticaloa, has been the scene of heavy fighting for months, with over 500 combatants killed since October, according to the military.

``Still some confrontations are taking place,'' said deputy military spokesman Maj. Upali Rajapakse on Sunday, adding that insurgents who fled their camps in small groups are firing at the army as commandoes hunt them down.

The government says the Tigers used Vaharai as a transit point to smuggle drugs and arms into the country and as a base for rebel naval attacks.

The army's capture of Vaharai sent thousands of terrified villagers fleeing to safety in neighboring, government-held Mankerni, where they were packed into flimsy tents and in crowded schools.

Worried Tamil parents said their children were being detained as security forces screened the refugees for suspected rebels.

Sunday's sea battle occurred just off the northern tip of the Jaffna peninsula when a Sri Lankan-owned cargo ship, City of Liverpool, leaving Point Pedro harbor came under attack from about 20 rebel boats, Dassanayake said.

Navy patrol boats and troops on board the cargo ship retaliated, sinking three boats, he said.

The cargo ship suffered some damage, but the crew was safe, he said. Three sailors were wounded in the clash, he said.

There was no immediate comment from the rebels, but the pro-rebel TamilNet Web site confirmed the incident, without giving details.

The Tigers are fighting for a separate homeland for the country's 3.1 million Tamils, who have suffered decades of discrimination by the majority Sinhalese. Discuss this story Published: Sun Jan 21 13:41:56 EST 2007

The fighting left 331 guerrillas and 45 troops dead, according to an official count. More... Discuss this story Published: Sat Jan 20 23:31:05 EST 2007