The military said the Tigers had been firing at military camps in the restive east since early morning, wounding five soldiers, and that troops had retaliated with artillery and mortar bomb fire, but had no details of any civilian casualties.

Nordic truce monitors and Red Cross officials were on the way to the site of the incident in Kathiraveli in the eastern district of Batticaloa, the latest in a series of clashes in a new chapter of the island's two-decade ethnic conflict.

"They have hit a camp for displaced. So far 45 have died and 125 are injured -- all civilians," S.Puleedevan, head of the Tigers' Peace Secretariat, told Reuters by satellite phone.

The Red Cross said their aid workers had seen 18 corpses as well as 50 wounded taken to nearby Vakarai hospital.

Puleedevan said he was visiting the northern town of Pooneryn, near the army-held Jaffna peninsula, with the head of the island's Nordic truce monitoring mission, and that the army was also firing artillery at them there.

The Liberation Tigers of Tamil Eelam (LTTE) and the Sri Lankan military have clashed repeatedly in the north and east in recent months.

The air force has repeatedly bombed Tiger areas since peace talks collapsed late last month, and Wednesday's incident comes just days after the government unveiled a new probe into a host of extrajudicial killings, massacres and abductions.

The military said the Tigers were firing at government forces and using civilians as cover.

"From morning they have been firing artillery at us," said military spokesman Brigadier Prasad Samarasinghe. "We have been retaliating with artillery and mortars. There's no army offensive going on.

"We have been asking people to leave Tiger areas and to come to our areas, and 594 people have done so," he added. "But some of them are being kept as human shields."

Well over 65,000 people have been killed in the conflict since 1983, while tens of thousands of people have been displaced since fighting flared in late July.

"There are about 35,000 internally displaced in the Kathiraveli area ... so we will have to see now where they are moving to," said Peter Krakolinig, deputy head of the International Committee of the Red Cross. "It is a serious situation."

The first peace talks in eight months collapsed in late October over a rebel demand that the government reopen the main north-south highway which runs through Tiger territory to Jaffna, a government-held enclave on the northern tip of the island.

The foes are sharply divided over the Tigers' central demand for a separate homeland for ethnic Tamils in the island's north and east, where the rebels already run a de facto state.