Peace broker Oslo sent special envoy Jon Hanssen-Bauer who immediately went in for talks with Prime Minister Ratnasiri Wickremenayake and Foreign Minister Mangala Samaraweera, officials said.

Details of the discussions were not immediately known but diplomats close to the peace process said the thrust of the discussions was to save the collapsing ceasefire which Oslo arranged and put in place in February 2002.

"The latest talks have become critically important for Sri Lanka," a diplomat said. "The peace process is facing its biggest ever challenge."

Hanssen-Bauer was due to travel to the rebel-held town of Kilinochchi on Saturday and spend a few days talking with the Liberation Tigers of Tamil Eelam (LTTE) leadership about salvaging what is left of the 2002 truce.

"The envoy will spend the weekend in Kilinochchi talking to the LTTE leadership," said LTTE spokesman Velayadun Dayani. "He will talk about the peace process and the war-like situation."

International concern was led by UN Secretary General Kofi Annan who called for an immediate halt to the latest battles, which erupted 10 days ago when the Tigers cut off a canal in northeastern Trincomalee district supplying water to thousands of families.

The violence has raised fears of an all-out return to civil war on the island, where an often-broken ceasefire has tried to keep a lid on a Tamil insurgency that has left some 60,000 people dead in the past three decades.

Relief workers said families were using any transport they could find to get out of the mainly-Muslim town of Muttur near Trincomalee, which on Wednesday became the latest flashpoint in the battle that has claimed 169 lives by official count.