The Tamilnet report said more than 250 civilians have been admitted to a makeshift hospital in Puthkkudiyirippu.
The government said Puthkkudiyirippu is one of the last areas held by the LTTE, who have been fighting since 1983 for a separate homeland for ethnic Tamils in the island's north and east.
LTTE fighters are reportedly confined to about 28 square kilometres of jungle and beach on the northeastern coast.
Risks to civilians have led the United Nations, European Union and numerous countries to voice concern.
The UN has said 2,800 civilians caught in the fighting have been killed since late January, though the government disputes that figure.
The UN estimates at least 150,000 civilians are trapped in the war zone. The government says the number is closer to 50,000 to 60,000 people, and accuses the LTTE of using them as human shields in a bid to avoid defeat.