"The bomb was rigged up on a tree and manually triggered as the bus passed. It was the work of the Tigers."
Five people were dead when they arrived at Vavuniya hospital, where two passengers later died because of their injuries, a hospital official said.
Seven soldiers were among those wounded.
Rasiah Ilanthiraiyan, the Tamil Tiger military spokesman, said: "It is part of series of incidents for the past few weeks continuously happening in the northeast.
"Hopes for peace that followed a 2002 ceasefire have been dashed by shootings and bombings over the past 18 months"
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"This is a programme by military intelligence people to tarnish the Tigers in the international forum."
The explosion in the northern district of Vavuniya is the second such incident in a week and comes amid a string of near-daily land and sea confrontations between the Tigers and the government in the two-decade civil war.
Saturday's attack came five days after a bomb exploded inside a bus in the east of the island, killing 17 people and wounding 25.
The Tamil rebels have waged a 35-year campaign for independence that has claimed more than 60,000 lives in Sri Lanka.
More than 4,000 troops, civilians and rebels have been killed in the past 15 months alone.
Human rights groups are calling for an international human rights monitoring mission to curb abuses blamed on both sides.