A formal decision on the blacklisting "could come extremely quickly", perhaps as early next week, one EU diplomat said in Brussels. Another said it would come "before June".

A number of diplomats, speaking on condition of anonymity because of the "extremely sensitive" nature of the subject, told AFP the decision had been taken by EU officials late on Thursday.

The decision came two days after a US State Department official said in Sri Lanka that Washington had encouraged the 25-member EU to ban the Tigers, declare them a terrorist group and cut off their international funding.

Diplomatic sources had said some EU members feared a ban could prompt the Tigers to pull out of the peace process completely.

The rebels' top negotiator, in comments received earlier Friday, said moves to ban the Tigers would be detrimental to peace.

"Emboldened by international support, and especially by further proscriptions of the LTTE, the Sinhala hardline elements will undoubtedly take steps to further escalate the violence and precipitate a war in which they hope to destroy the LTTE," Anton Balasingham was quoted as saying by the pro-rebel Tamilnet.com website.

He has led delegations of the Liberation Tigers of Tamil Eelam (LTTE) in negotiations with various Sri Lankan governments.

The Tigers are fighting for a minority Tamil homeland on the island where Sinhalese form the majority.

Balasingham was quoted as saying that an EU ban "is not going to help bring about peace, (but) will only serve to exacerbate the conditions of war and endanger the lives of Tamil civilians entrapped by Sinhala occupation forces."

He warned that further bans on the LTTE "will invigorate the hardline elements in the south, including those in the present Sri Lankan government urging the military defeat of the LTTE and silence those advocating a negotiated solution.

"The more the international community alienates the LTTE, the more the LTTE will be compelled to tread a hardline individualist path."

US Principal Deputy Assistant Secretary for South and Central Asian Affairs Donald Camp ended a visit to Sri Lanka on Tuesday by saying Washington had "encouraged the EU to list the LTTE" as a terrorist group.

"We think the LTTE is very deserving of that label. We think it will help cut off financial supplies and weapons procurement and the like," he said.

The US banned the LTTE in 1997, five years after India outlawed the group, holding it responsible for the assassination of former Indian prime minister Rajiv Gandhi. Canada labelled the Tigers a "terrorist" group last month.

The EU freezes the assets of groups on its terrorist list. The designation also allows for special cooperation measures to combat them.

Sri Lankan Foreign Minister Mangala Samaraweera said in Tokyo on Thursday that he hoped Sri Lanka's donors would use their influence on the Tigers to stop their attacks and resume talks.

He was to hold talks with his Japanese counterpart Taro Aso in Tokyo on Friday as part of his effort to seek international help to curb mounting unrest, which has left a 2002 ceasefire in force only on paper.

More than 200 people died last month, the bloodiest in four years.

In the latest violence Friday, two soldiers were shot dead at a de facto front line in north-central Vavuniya district, the army said.

"The latest Friday morning attack came in the wake of a string of LTTE attacks on army forward defence lines, sentry points and detachments in the past couple of days," an army statement said.

Separately at least five Tamil Tigers were believed killed in fresh clashes with a breakaway faction in northeastern Sri Lanka, military officials said, citing intercepted radio communications.

There was no immediate comment from the rebels on either incident.