Tamil Tiger rebels said on Thursday that more than 50 civilians were killed and 200 others were injured in their territory in the island's east during the fighting.
S Puleedevan, head of the Tigers' peace secretariat, said 15 of the dead were taken to a hospital in the rebel-held town of Vakarai, to the south of the site of the fiercest fighting since a 2002 truce.
There were another 35 bodies still to be moved, he said.
"There are over 50 dead because of artillery and mortar shells fired by the Sri Lankan military as well as fire from Kfir fighters," Puleedevan said by telephone from the northern rebel stronghold of Kilinochchi. Dozens of soldiers were injured.
The military said it had no details, but troops said they made a push early on Thursday to wrest control of the disputed water supply, which the rebels unblocked on Tuesday and which triggered the fighting in the first place.
Nordic truce monitors said the Tigers had earlier given them a figure of between 30 and 40 dead, and said they believed it.
Medics treated dozens of new army casualties taken to the government-held town of Kantale in the island's east, and were told to expect more.
The local hospital struggled to cope, as injured people shared beds and lay on trolleys.
Kantale town is already struggling to cope with about 30,000 people displaced by days of fighting.
Aid workers say the human cost has already been high, although it will become much worse if the two-decades civil war that has already killed more than 65,000 people escalates to cover more of the north and east, where the Tigers want a separate homeland for minority Tamils.
The government says it will not halt its operation until it controls a disputed sluice and a reservoir that feeds it. The Tigers say the land is theirs, and say ongoing army attacks amount to a declaration of war.