The fighting came amid a sharp escalation in the 25-year-old civil war between government forces and the ethnic Tamil rebels. The military has forced the rebels to retreat from large swaths of their stronghold in the north in recent months.

Military spokesman Brigadier Udaya Nanayakkara said the sea clash erupted after naval patrol boats ordered the suspected rebel ship to identify itself at about 2am some 70 nautical miles off the coast.

The ship fired upon the navy boats and the navy retaliated, he said.

Four boats came to the support of the ship and were also destroyed, he said. Brig Nanayakkara said details of casualties were not available.

The 30-metre vessel 'was carrying a large quantity of warlike materials' as it sank 'engulfed in a ball of fire'. There was no immediate comment from the rebels.

The Tamil Tigers, who have been fighting for an independent state for the country's ethnic minority Tamils since 1983, have a strong naval force. Rebels often ram boats packed with explosives into government naval ships in suicide attacks.

On Friday, air force jets pounded rebel bunker lines and other fortifications in the Kilinochchi district in the north, the military said in a statement. Helicopters also attacked a flotilla of boats belonging to the Sea Tigers, the rebel naval wing, that were gathered in a lagoon.

The government said last month that the fall of Kilinochchi - the rebels administrative capital - was 'imminent,' but it remains in rebel hands despite a series of bloody battles in the area in recent weeks.

More than 70,000 people have been killed in the decades of violence. -- AP