At least 45 people are feared dead after Tamil Tiger rebels attacked a Sri Lankan navy vessel off the island's north coast.
Up to 15 Sri Lankan sailors and 30 Tamil Tiger rebels are thought to have died in the fierce sea battle.
The rebels sank the navy fast attack craft by ramming it with a boat loaded with explosives, according to officials, who added that the navy vessel was escorting a ship transporting 710 soldiers.
The troop transporter, which had sustained light damage, was moved to shelter in Indian waters after the confrontation.
International truce monitors said their officials saw two navy vessels sunk by rebels during the clashes, but military officials would only confim the sinking of one boat.
The violence comes after a spate of attacks in April, one of the bloodiest months of the island's four-year ceasefire, and just a day after peace envoys left the island after an abortive bid to coax the Tigers to return to peace talks.
Bombings and land and sea clashes have killed more than 200 people in the past month. More people were killed in April than during many periods of the war itself, when attacks were often sporadic and followed by weeks of little activity.
