Following the end of the conflict in May, an estimated 270,000 minority Tamil civilians who had fled the final months of fierce fighting were forced into the detention camps.
About 15,000 people have since been resettled and government officials last month told the UN that all displaced Tamils would be allowed to return home by the end of January.
The government has said it needs to screen the detained Tamils for ties to the LTTE before they can be released, and says it needs time to clear mines and other dangers from Tamil villages.
But the detention has been condemned by human rights groups as an illegal form of collective punishment for Tamils following the government's victory in the war.
The United Nations and other humanitarian groups have also expressed concerns over the conditions in camps, which they say are overcrowded and prone to disease.
There have also been concerns that the imminent monsoons will cause the camps' limited sanitation systems to overflow, creating a public health crisis.
The government has said it will compensate the returning Tamils, but has not given specifics on what assistance it will offer.
"We will take steps to give you all that you lost, other than the lost lives," Basil Rajapaksa, a senior government adviser and brother of Sri Lanka's president, Mahinda Rajapaksa, told a public meeting in the village of Kathankulam.
Thursday's release of Tamil detainees comes amid calls from the US for an international investigation into potential rights violations by both sides during the final stages of the war.
In Washington, a spokesman for the US state department called on the Sri Lankan authorities to take steps to "thoroughly investigate" what he said were "credible" claims of atrocities committed by government forces and Tamil Tigers detailed in a department report.
"Ultimately, as appropriate, (they should) bring to justice those who are found guilty," Ian Kelly said following publication of the report, which was sent to congress on Wednesday.
The US report contains allegations that LTTE fighters took boys and girls to join their guerrilla force, and says government forces broke a ceasefire as well as killed rebels who had agreed to surrender.
It also cites claims that government troops or government-backed paramilitaries "abducted and in some instances then killed Tamil civilians, particularly children and young men".
Sebastianpillai Rasanayagam, a 42-year-old rice farmer, was one of a group of more than 1,000 refugees bussed home to northern Mannar district following the latest release.
His family had fled after a shell slammed into their house, killing his 8-year-old son, in February last year.
"At the camp our only relief was that we were alive," he told the Associated Press, describing and the harsh conditions, including a lack of clean water, he and other detainees had endured.
"We were worried when we will be able to return home… Hospital visits were the only times I got to go out."
Rasanayagam said he was relieved to return home to his farm, but wept as he remembered his son.
"When I go home I will miss my son more," he said.
The state department report covered the period of the final government offensive in the war from January until the end of May.
A spokesman in the office of the Sri Lankan president dismissed the report, saying that the government is "going to thoroughly investigate everything".
"We have a rule of law in this country; we have a court system in our country. We can investigate things," Lucien Karunanayake told Al Jazeera.
"The investigation process is the Sri Lankan legal process. Complaints have to be made, verified, indictments filed, arguments made in court and then decisions taken."
Karunanayake said any investigation would depend "so much on what is being said by whom and on what basis".
"The Sri Lankan government is a sovereign state," he said.
"This state must be satisfied that there is sufficient need for any such inquiry, [and] so far there is no sufficient need."
Brad Adams, Asia director of the New York-based Human Rights Watch, said in a statement that he believed the report's claims to be "credible".
It ""should dispel any doubts that serious abuses were committed during the conflict's final months", he said.
Adams called for an independent, international investigation into the allegations, given what he said was "Sri Lanka's complete failure to investigate possible war