The main Tamil Tiger force mounted the offensive from the northeastern port district of Trincomalee, moving south to take control over the town of Vakarai on Saturday, military sources and aid officials said.
They said there was little resistance as the breakaway faction led by V Muralitharan, better known as Karuna, had withdrawn to a point where security forces had unwittingly been placed right between the two warring factions.
Rebel sources said the main Liberation Tigers of Tamil Eelam (LTTE) forces at the weekend mounted another drive against Karuna, this time from the south and moving towards Karuna's main jungle bases in the Batticaloa district.
Karuna's faction said nine of its fighters were killed and 10 wounded while another 300 surrendered, or were captured by the main Tiger group.
Military sources, however, placed the number of fatalities on both sides at about 20. At least two civilians - an ambulance driver and a paramedic - were also killed in the crossfire.
The LTTE leadership, known for its ruthlessness in putting down dissent, said it had started "coordinated operations to expel Karuna," who led an unprecedented breakaway from the Tigers on 3 March.
Renegade leader V Muralitharan
is better known as Karuna
Karuna had accused the leadership, based in northern Sri Lanka, of ignoring the interests of Tamils in the east who put up much of the fighting force in the Tigers' three-decade campaign for a separate Tamil homeland.
"We are taking all efforts to bring a closure to Karuna's actions and the resulting disturbances and anxiety caused in the east," the LTTE said in its first statement since mounting the attack against Karuna on Friday.
"We will take every effort to avoid bloodshed and loss of lives."
UNICEF on Sunday asked the warring factions to free child soldiers amid reports that young boys and girls had been killed and wounded in the fighting.
The Tigers have long faced international criticism for recruiting underage fighters.
Unicef has criticised rebels for
recruiting child soldiers
The main civil administrator in the Batticaloa district, Punyamoorthy, estimated the number of people who fled their homes in the troubled areas was more than 11,000.
The International Committee of the Red Cross (ICRC) later said some of the refugees had begun returning to their homes.
"In places like Vakarai, the displaced people have already gone back as the Tigers moved in and established control," ICRC spokesman Sukumar Rockwood said Sunday.
The new government has called the factional fighting a violation of a truce arranged by peace broker Norway in February 2002 between Colombo and the main leadership of the LTTE.
The internecine clashes broke out a week after national elections that were narrowly won by Kumaratunga's Freedom Alliance, which includes hardliners opposed to concessions to the rebels.
The LTTE called last week for a revival of peace talks with the incoming government, but warned it would return to fighting if it were not granted self-rule.
Diplomats said the fresh fighting further dimmed prospects for reviving the Norwegian-brokered peace process, which has been stalled since April. More than 60,000 people have died in ethnic bloodshed in Sri Lanka since 1972.