The Sri Lanka military says it has regained control over the eastern Muslim town of Muttur in Trincomalee province, after Tamil Tigers pulled back to their former positions.
The rebels say they withdrew to their positions as per the February 2002 ceasefire after achieving what they had set out to do.
The pro-rebel web site reported that 32 Tamil Tigers died in the clashes in Muttur.
Meanwhile, Norwegian peace envoy John Hanssen-Bauer is again trying to bring back the two sides from the brink of full-scale civil war.
On Friday, he held talks with Sri Lankan government leaders and is expected to travel to the north to meet with rebel leaders.
Government forces began an offensive last week to end rebel control of a waterway that provides irrigation for government-held farmland.
The rebels are fighting for a separate homeland for ethnic-minority Tamils, accusing the Sinhalese-dominated government of oppression.