"The world today is ever sensitive about such acts that could amount to war crimes and crimes against humanity," said the former UN war crimes judge, who is a member of the Tamil ethnic group and grew up in South Africa.
The Sri Lankan government has been quick to reject the high commissioner's statement.
"I must say we are both disappointed and dismayed by the assertions made in the statement," Mahinda Samarasinghe, Sri Lanka's disaster management and human rights minister, told Al Jazeera.
Samarasinghe said Pillay seemed to have taken her "facts and figures" from LTTE-linked sources and said that Colombo's ambassador in Geneva would meet the high commissioner on Monday to detail the government's position.
Sri Lankan government forces and the separatist rebels have been engaged in heavy fighting, resulting in significant civilian casualties.
Fighting has been particularly heavy in the last few months with government forces launching a major offensive against the LTTE .
Pillay called on Sri Lanka's government to grant full access to UN and other aid agencies to monitor human rights and humanitarian conditions amid reports of "severe malnutrition" among those trapped.
"The current level of civilian casualties is truly shocking and there are legitimate fears that the loss of life may reach catastrophic levels, if the fighting continues in this way," Pillay said.
"The brutal and inhuman treatment of civilians by the LTTE is utterly reprehensible and should be examined to see if it constitutes war crimes."
Walter Kaelin, the UN secretary-general's representative on the human rights of internally displaced persons, also voiced grave concern at reports of LTTE rebels using civilians as shields and preventing them from leaving the conflict zone.
Kaelin also stressed that Sri Lanka's government must protect and assist civilians fleeing the fighting, as well as avoid confining them to camps.
But P Ramasamy, a former member of the LTTE-run Tamil constitutional affairs committee, said that the situation "is more complex than meets the eye of the UN high commissioner of human rights".
"While the fighting is going on the maximum damage is inflicted on the civilians by the Sri Lankan armed forces," he told Al Jazeera.
Sri Lanka's military has encircled the LTTE in a mere 37sq km of the island nation's northeastern coast and says it is close to dealing a death blow to a civil war that has raged off and on since 1983.
More than 2,800 civilians may have been killed and more than 7,000 wounded since January 20, according to a range of credible sources. Many had been inside the "no-fire" zones, the UN says.
The LTTE is seeking a separate homeland in the country's north and east for the ethnic Tamils, accusing the Sinhalese-dominated Sri Lankan government of marginalising the Tamil minority.