The military accused the Tamil Tigers of forcibly boarding the vessel while it was adrift with a cargo of 14,000 tons of rice bound for South Africa from India.
Master said the ship was still off Mullaittivu.
Foreign truce monitors urged the LTTE to respect international law and said the military was planning to mount an operation to rescue the crew and salvage the ship.
On Sunday, LTTE fighters threw a grenade at a police post near a church in the northwestern town of Mannar, killing a policeman and wounding three others, the military said.
The standoff over the ship comes at a time when the Tigers, fighting for an independent homeland for minority Tamils in the north and east, are locked in daily artillery duels with the military which has forced thousands of people to flee.
In fresh fighting on Sunday, the rebels fired artillery and mortar bombs in Batticaloa area in the east, the military said, and government troops returned the fire. No damage was reported.
More than 3,000 civilians, government troops and Tamil fighters have been killed so far this year in ambushes, air raids, ground and naval battles and suicide bombings.
However, the fighting has been largely confined to the north and east, and many fear that it may spread throughout Sri Lanka.