The Sri Lanka Monitoring Mission (SLMM) team will regroup in Colombo under a new leader after the Tamil Tigers ordered all the observers from European Union countries to leave by September 1.
Major-General Lars Solvberg, Norway's former army chief, will take charge of a 30-strong group of Icelandic and Norwegian monitors when Denmark, Finland and Sweden pull out ahead of the deadline.
"Intensive military operations and fighting are taking place in several locations in the north and east. The parties are restricting the SLMM's access to combat areas," a Norwegian foreign ministry statement said.
"As a result, the head of mission ... has decided to regroup the international monitors in Colombo temporarily."
Monitoring to continue
Erik Solheim, Norway's international development minister and the top peace-broker between the Sri Lankan government and Tamil Tigers, said that despite the recent violence both parties wanted the monitoring mission to continue.
"In spite of the reduction in the number of SLMM personnel, both parties to the conflict have expressed their strong wish for continued SLMM presence," Solheim said.
The mission should have 57 monitors, but the withdrawal of EU members has cut numbers by nearly half.
About 16,000 people have fled
from them homes in Jaffna
The Liberation Tigers of Tamil Eelam (LTTE) demanded that Denmark, Finland and Sweden leave after the EU designated the group as a terrorist organisation in May.
Earlier, diplomats from the US, EU, Norway and Japan met Mahinda Rajapakse, the Sri Lankan president, at his official residence to express their concern at the violence which has claimed more than 1,500 lives since December last year.
They have been pressing for an immediate halt to the fighting and a resumption of talks put on hold in April 2003 by the Tigers.
Red Cross aid
A Red Cross ship had been due to sail to the Jaffna peninsula where government troops are fighting the LTTE on Monday, but rain delayed the loading and officials said she would now depart on Tuesday.
Many Jaffna residents have registered with government and Red Cross officials to leave the area, but the current plan is to evacuate only a few hundred with foreign passports as well as some aid staff - probably on a Red Cross-flagged ferry later this week.
More than 160,000 people have fled their homes, and basic commodities are running out in Jaffna after road, sea and air links have been cut by the violence.
An ethnic Tamil woman working for the Sri Lankan Red Cross has been shot and killed, the aid agency said. "We are so deeply shocked at the killing, like any killing. But we have no information she was targeted for her work," a spokeswoman said.
A former Tamil politician was also shot dead in his house in Jaffna on Sunday night, while the peninsula was under curfew. Sinnathamby Sivamaharajah was a member of the TNA, a political party widely believed to be linked to the Tigers.