Former deputy defence minister and one-time prime minister Ratnasiri Wickremanayake, a fervent Sinhala nationalist, was reappointed to the premiership by newly elected President Mahinda Rajapakse on Monday.
"The appointment of Wickremanayake sends a message that President Rajapakse intends to take a hard line stance on the peace process," Paikiasothy Saravanamuttu, director of the Colombo-based think-tank, Centre for Policy Alternatives, said.
"The appointment of Wickremanayake could have implications for the peace process, but we have to wait and see."
Rajapakse, who has allied himself to inflexible Marxists and nationalists strongly opposed to the Liberation Tigers of Tamil Eelam (LTTE) fighters, has not yet announced the make-up of the rest of his new cabinet.
Rajapakse campaigned on pledges of ruling out widespread devolution for minority Tamils and has rejected outright the LTTE's demands for an ethnic homeland - angering the rebels.
Wickremanayake, 72, served as prime minister from August 2000 to December 2001 under former president Chandrika Kumaratunga.
Are the Tigers buying time to
regroup and push for autonomy?
However, the prime minister in Sri Lanka is greatly overshadowed by the executive president.
Rajapakse won the presidency on Friday after the LTTE scuppered the chances of the more moderate main opposition leader Ranil Wickremesinghe, in a move analysts say was aimed at further stalling a protracted peace process.
Observers say the rebels are seeking to avoid returning to peace negotiations to buy time to regroup and push for autonomy in the island's north and east.