"Around 20 Tiger vessels have come and attacked a cargo ship which had just dropped off a shipment of food for Jaffna," said Brigadier Prasad Samarasing, a military spokesman. "The battle is still ongoing."
The naval battle came as Sri Lankan troops further south pursued small groups of fleeing Tigers who were routed earlier in the week from Batticaloa, a eastern stronghold that they had held for 11 years.
Samarasing said troops had killed at least 18 Liberation Tigers of Tamil Eelam (LTTE) fighters during a pre-dawn clash as they tried to cross an army-held highway in the eastern Batticaloa district.
He said troops also found the corpses of 22 other Tigers presumed killed in previous days. But dozens of other had likely managed to flee the eastern enclave, which fell to the army on Friday.
"In small numbers they will have crossed towards Toppigala," Samarasinghe said, referring to a swathe of LTTE-held jungle inland.
"We can't cover all the routes because there are so many kilometres [of road to defend]."
Tigers remain defiant
The captured coastal stretch spanning the districts of Trincomalee and Batticaloa around 240 km northeast of Colombo was an important maritime supply line for the Tigers.
It's loss after 11 year is a major strategic blow to the Tigers which could herald the start of a new chapter in the country's two-decade civil war.
"The location [of our fighters] may have changed, but we still have our fighting capacity," said Rasiah Ilanthiraiya, the Tigers' military spokesman, speaking from the group’s northern base of Kilinochchi.
"It doesn't mean the LTTE has gone nil in Trincomalee," he said, refusing to comment further.
Refugees flee fighting
As the Tamil Tiger enclave fell on Friday, more than 10,000 refugees fled from the area where they had been trapped for weeks by artillery duels between the two sides.
They joined tens of thousands of refugees who had already escaped in recent weeks by trekking through the jungle, or swimming across lagoons and the sea.
They now live in crowded emergency camps in Batticaloa.
The United Nations estimates that more than 210,000 people have been displaced in the past nine months.
More than 500,000 people are now currently displaced across the island due to war - past and present - and the 2004 tsunami which devasted large swathes of the island's coastline.
The Tigers resumed their fight for an independent state for minority Tamils in the north and east after the majority Sinhalese government rejected demands for a separate homeland.
With a rash of suicide bombings, air raids and land and sea battles in recent months, analysts fear a futher escalation of a conflict that has killed more than 67,000 people since 1983.