Troops have had to advance through minefields to reach a waterway the government accuses the Liberation Tigers of Tamil Eelam (LTTE) of blocking to choke supplies to 50,000 people living on farmland in army-held territory.
One army officer said getting to the rebel-held waterway could take two more days.
The rebels surrounded the reservoir - which supplies the villages with drinking and irrigation water - on July 20, accusing the government of reneging on a promise to build a water tower for people living in rebel-held areas.
At least 67 people were killed in clashes near Trincomalee and elsewhere on Monday.
The island-nation's northeast is divided into government and rebel-held areas. The sluice gate is in a guerrilla-controlled territory but supplies water to government-held areas.
A government official said cutting off the water was aimed at forcing the majority Sinhalese and Muslim populations out of ethnic Tamil areas.
The military said Tamil Tigers artillery, mortar launchers and gunboats attacked a ship entering Trincomalee port, north of the reservoir.
"As our passenger ship carrying 854 soldiers was entering the harbour, she was fired on by LTTE mortars and artillery," a military spokesman said. "She is now safely in harbour and there are no reports of casualties."
Tamil Tigers said a naval fast-attack boat was sunk, the naval headquarters were hit and 14 sailors killed.
The military has denied the claims.
The navy said three small Sea Tiger craft were sunk and three damaged, including explosives-packed speedboats piloted by suicide bombers.
"In reality there is no ceasefire in Trincomalee, but the paper [truce] is still valid ... Call it a low-intensity war"
Major-General Ulf Henricsson, head of the Nordic mission that oversees the truce
The air force has conducted seven consecutive days of aerial bombings on rebel positions in the east.
Analysts say the truce has ruptured and a two-decade war that killed more than 65,000 people since 1983 has resumed.
Truce monitors believe that the ceasefire is dead in all but name and more than 830 people have been killed so far this year.
While the government says it remains committed to the truce, the LTTE accuses the government of rendering it null and void.
Talks on hold
Major-General Ulf Henricsson, head of the unarmed Nordic mission that oversees the truce, said late on Monday that "in reality there is no ceasefire in Trincomalee, but the paper [truce] is still valid".
"I still don't believe in a full-scale war ... Call it a low-intensity war," he said.
Sweden has announced its 15 ceasefire observers will be pulled out of the country. Finland and Denmark announced similar moves last week. Norway and Iceland remain in the mission.
The Tigers have pulled out of peace talks indefinitely, angry at the government's refusal to grant them a separate homeland for ethnic Tamils in the north and east, where they already run a de facto state that encompasses around 15% of the island.