Rasiah Ilanthirayan, military spokesman for the Liberation Tigers of Tamil Eelam (LTTE), said advancing troops "will find stiff resistance from our people" if they entered the northern territory.
"We will deploy the necessary tactics and the necessary tools to protect our people from the opposing force," he said.
Loss of the eastern province would deal a significant blow to the Tigers' dream of establishing an independent homeland in the island's north and east.
Since 1983 the conflict between Sri Lanka's ethnic minority Tamils and the majority Sinhalese-controlled government has claimed more than 70,000 lives.
Praising Wednesday's claimed advance, Mahinda Rajapakse, the Sri Lankan president, welcomed what he said was the capture of "the last stronghold of the terrorists".
"I remember with honour all heroes of war ... who sacrificed their lives or were wounded in this exercise, carried out on behalf of the country," he said in a statement.
Elsewhere in Sri Lanka, the LTTE accused the government of carrying out an air raid on a rebel-held northern village, killing two civilians and wounding 11 others.
|The military focus is expected to shift |
to the Tiger's northern base [EPA]
However a spokesman for the Sri Lankan airforce denied attacking civilians saying the target, at Alambil village in northern Mullaitivu district, had been identified as a rebel sea base.
Norway brokered a ceasefire between the two sides in 2002.
The ceasefire still holds on paper, but has collapsed on the ground with assassinations, air strikes and steady fighting over the past 20 months that killed more than 5,000 people.
S Puleedevan, a top rebel official, told The Associated Press in the northern rebel stronghold of Kilinochchi, where the Tigers maintain a de facto state, that "the fighting will continue" despite a change in the modus operandi.
The military offensive to retake the east began last year as tensions increased across the country, and the government has vowed to destroy all Tiger military assets by shifting the focus to the north.
Harry Goonetilleke, a former Air Marshall, said the seizure of Thoppigala was an important success for the military but the challenge would be in keeping it.
He said the government should now negotiate with the rebels rather than begin an all-out operation to capture northern guerrilla strongholds.