"As the people got off the bus, the package exploded. The bus caught fire," the official said.
The military blamed the attack on Tamil Tiger rebels.
"It seems the bomb was planted in the bus," said a military spokesman, declining to be named in line with policy.
"Obviously it was the LTTE [Liberation Tigers of Tamil Eelam]," he said. "Nothing but them."
The new violence came a day after the defence ministry said war planes had stepped up bombing raids inside Tamil Tiger-controlled territory.