"The LTTE set off a suicide explosion. There are large number of casualties," he said.
"He [Perera] was a retired general who had fought the LTTE, and because of that they may have targeted him," Nanayakkara told Al Jazeera.
There was no immediate claim of responsibility, but the Tamil Tigers are known to have previously carried out many suicide attacks.
Last month Perera unsuccessfully ran for the position of North-Central Province's chief minister.
Al Jazeera's Tony Birtley, reporting from Colombo, said that the former general was a high-profile figure with enemies on boths sides in the conflict.
"He was disliked by some because he criticised the army's handling of the war a few years ago, but also he was hated and loathed by the LTTE; they held him responsible for a number of human rights abuses against Tamils," he said.
The United National Party accused the government of ignoring repeated requests for a stronger security detail for Perera.
"The government must take full responsibility. They did not give him adequate security for political reasons," Tissa Attanayake, a party offficial, said.
Sri Lanka's military has been involved in a major offensive against the LTTE in the north of the island for more than a year, in an attempt to defeat the group.
The army chief of staff on Sunday urged all Tamil Tiger fighters to lay down their arms as his troops were within a few kilometres of Kilinochchi, the de facto capital of the LTTE.
"There is a great deal of confidence in the military, they say now that it is the beginning of the end for the Tamil Tigers, but we do have the rainy season coming and that will slow them considerably," Al Jazeera's Birtley said.
"Although we have had considerable progress up to now, going on from here is going to be tougher ... by their own estimation there is something like 4,000 highly trained LTTE fighters left on the other side ... they are not going to give up without a fight."
Perera's United National Party officially supports a negotiated settlement with the Tigers and says the current offensive is being used by the government for political ends.
It was in government in February 2002 when a Norwegian-brokered peace process, which finally collapsed earlier this year, was agreed
In a separate attack overnight, a roadside bomb killed two civilians and wounded another on a remote road in the Anuradhapura district, according to Sri Lanka's military.
Mahinda Rajapakse, Sri Lankan president, said the Tamil Tigers were "making every attempt to create violent backlashes" after suffering a series of setbacks.
Anuradhapura is a popular tourist location and home to some of Sri Lankan Buddhism's holiest sites, but it also has a number of military sites used to supply the offensive in the north.