"The decision reflects the evolving nature of the IMF's relationship with Sri Lanka, with Sri Lanka no longer having a program with the IMF," the fund's senior resident representative for Sri Lanka, Luis Valdivieso said in a statement.

He said the decision was also taken in the context of the overall declining budget available to the IMF to maintain an office in Colombo.

The Washington-based fund will continue to maintain a close relationship with Sri Lanka, with staff visiting regularly to exchange views with the authorities, he said.

"The IMF also remains firmly committed to the government's efforts to promote sustained economic growth and poverty reduction," he said.

On Friday, the fund warned Sri Lanka to settle its long running ethnic conflict that has claimed over 60,000 lives since 1972.

"Sri Lanka's near- and medium-term economic prospects depend critically on progress on the peace front and on implementing essential reforms," IMF said in its annual review known as the Article IV consultations.

Military confrontations between government forces and Tamil Tiger rebels intensified recently, claiming over 3,600 lives in the past year, and there has been no progress in attempts to settle the conflict through negotiations.

"With only minor interruptions in most parts of the country, growth is projected at 7 percent. Financial markets have remained calm, though investor confidence has been somewhat weakened by increased uncertainties," the IMF added.

The report also reclassified Sri Lanka's exchange rate regime to a managed float from a "free float" as heavy official intervention by the Central Bank violated IMF stipulations.

The IMF said Sri Lankan government curbs on loans to finance imports amounted to exchange controls and were against the country's "Article VIII" obligations.