The Tamil Tigers had said they would lift the blockade on water supplies to Sri Lankan government areas if the government agreed to their demands.
"Our leader has agreed to open the sluice on humanitarian grounds," SP Thamilselvan told reporters after talks with Jon Hanssen-Bauer, the Norwegian peace negotiator, on Sunday.
The sluice gates at Maavilaru provide irrigation and water to thousands of people in the northeast district of Trincomalee.
The government said they were not involved in the negotiations which led to the offer.
"Water should not be a negotiating tool," government spokesman Keheliya Rambukwella said.
The Sri Lankan military renewed their artillery attacks on the disputed reservoir as Ulf Henricsson, chief of the Nordic cease-fire monitoring team, and rebel officials were preparing to reopen the sluice gates, Seevarathnam Puleedevan, a Tigers leader said.
Tommi Lekenmyr, chief of staff at the monitoring mission, confirmed that account saying "The sluice gates remain closed."
"We don't want terrorists to come and open the waterway. They must simply allow irrigation engineers to do it, otherwise we will open it anyway," Rambukwella said.
The Tamil Tigers had said that a cease-fire agreement reached in 2002 was still in place but further government attacks would be treated as an act of war.
Full scale war
"The cease-fire is on at the moment, and if the military continues attacks and shellings and makes any more moves, we will consider it as a full scale war," Thamilselvan said.
A military spokesman said that the firing was to clear fighters out of the area.
"There is nothing new," he said of the artillery barrages. "We have been saying that our operation is on to open the sluice gate ... and this is what is happening now."
On Saturday, the Liberation Tigers of Tamil Eelam (LTTE) stopped its offensive on government-held territory and pulled out of the town of Muttur which it had occupied.
The fighting renewed fears that the 2002 truce to end nearly two decades of civil war was about to collapse.
The Liberation Tigers of Tamil Eelam have fought for nearly three decades for a separate homeland for Sri Lanka's 3.2 million minority Tamils in the north and east.