Water flowed to thousands of farmers in east Sri Lanka for the first time in three weeks on Wednesday, after Tamil Tiger fighters reopened the sluice on a disputed reservoir.
But fighting continued with the army firing rockets towards Tamil Tiger positions before dawn, 15 days after jets first dropped bombs on Tamil areas in a bid to wrest control of the disputed sluice.
Major Upali Rajapakse, senior coordinator at the media centre for national security, said: "Water is flowing. The water level has risen two metres high. That indicates there won't be a problem of water for those villagers and farmers."
"The fighting is on and off ... We are still consolidating the area.
The island's defence secretary said it was too early to say if the military campaign was nearly over.
Orders to vacate
The government says the Tigers must still vacate the area.
Palitha Kohona, head of the government peace secretariat, said that "not only should the water flow, the control of the water should be (in government hands), because the water has to be managed."
The Tigers said they had no intention of leaving the area, which Nordic truce monitors say is ill-defined, but was under de facto rebel control.
A car bomb rocked the capital
city of Colombo on Tuesday
"They have no right to say this is their territory," said S Puleedevan, head of the Tigers' peace secretariat.
"We have clearly mentioned that this is tantamount to a declaration of war if the Sri Lankan armed forces launch official attacks."
Thorfinnur Omarsson, spokesman for the Sri Lanka Monitoring Mission which usually oversees the island's truce, said that "the army say they have successfully reopened the sluice, and yet they still continue to attack. It doesn't make sense. It should be over".
Aid workers say more than 30,000 people have been displaced by the violence.
Health workers were dealing with dozens of cases of diarrhoea, skin conditions.
The Tigers say tens of thousands of extra people have been displaced in areas they control, although aid workers say the figure appears high.
Violence has continued sporadically elsewhere in the island.
Puleedavn also said that government forces had carried out two Claymore mine attacks inside rebel-held territory, killing five people, shortly after the water blockade ended.
"An ambulance was blown up in the first attack with five people killed there and in the second attack, also in the same area, four people had a narrow escape," said Puleedevan from the rebel-held town of Kilinochchi.
He said troops also fired artillery and mortar bombs into areas held by the guerrillas in the Trincomalee district, where tens of thousands have been displaced during the battles over water in the past two weeks.
There are no reliable death toll figures, as many areas in the conflict zone are still deemed too dangerous to enter because of landmines and booby traps, but dozens have been confirmed dead and aid workers fear the number could be far higher.
The latest violence comes after 17 local staff from international aid group Action Contre La Faim were found shot dead in their office on Sunday in the eastern town of Mutur, the site of days of fierce fighting.
Some relatives of the dead - most of them Tamils - have blamed troops for the killings. While the Tigers and the military each blame the other.