The tough anti-terror laws had been effectively suspended following a February 2002 Norwegian-brokered truce with the Tamils, who have been fighting for independence for the island's minority 2.5 million Tamil community in the majority Sinhalese nation of 19.5 million people.
The government source, however, said the cabinet was keen to ensure that bringing back provisions of the PTA did not affect the ceasefire agreement amid fears that the restoration of the draconian laws would mean the end of the truce.
Upsurge in violence
Fighting has peaked in 2006 and the government has been under intense pressure from its allies to ban the Tigers after the group was held responsible for Friday's assassination attempt against Gotabaya Rajapakse, the defence secretary.
Nationalists supporting the government of President Mahinda Rajapakse staged demonstrations in Sri Lanka last week demanding tough action against the Tigers, who last week wrote off four years of peace talks.
Velupillai Prabhakaran, a Tamil Tigers official, said in his annual policy statement in November that the ceasefire was "defunct" and he was resuming his campaign for independence.
The move also came as Jon Hanssen-Bauer, a top Norwegian envoy, visited Sri Lanka. He was asked to postpone a previously planned meeting with the Tiger leadership due this Sunday.
Nordic truce monitors reported that the ceasefire was holding only on paper, with at least 3,400 people reported killed this year.
The government first banned the Tigers in 1998 after they exploded a truck bomb, badly damaging the Temple of Buddha's Tooth Relic, a sacred place for the island's predominantly Buddhist majority.
More than 60,000 people have been killed in the island's Tamil separatist conflict led by the Tigers since 1972.