The military said it killed 120 Tamil Tiger fighters and that 25 soldiers were killed.
Both sides are known to exaggerate enemy casualties and play down their own. Journalists and independent observers are barred from the conflict zone, making it impossible to verify battlefield reports released by either side.
The government has been trying to capture the LTTE's political headquarters of Kilinochchi in northern Sri Lanka for several months. Offensives have been slowed down by heavy resistance and monsoon rains but military recently said it was within "kissing distance" of the town.
The ministry of defense said the military had taken the village of Ampakamam, southeast of Kilinochchi, from the LTTE on Monday.
The military forced the LTTE to abandon their strongholds in the east of Sri Lanka in July 2007 and the government has vowed to end the 25-year-old civil war by the end of this year.
The Tamil Tigers once controlled a large de facto state in northern Sri Lanka but have been forced into a rapid retreat by a massive military offensive.
The group have been fighting since 1983 for an independent land for ethnic minority Tamils. More than 70,000 people have been killed in the violence.