The Colombo government says it is on the verge of crushing the Tamil Tigers, who have been waging a campaign since 1972 to create a separate Tamil homeland on the Sinhalese-majority island.
India feels that along with reconstruction, Sri Lanka needs "to bring in the kinds of political steps including devolution which would enable the people there to feel they are in control of their own futures," Menon said.
"Unless that is done in a credible fashion, we run the risk of actually continuing with this sense of alienation and displacement which the conflict has resulted in," he told a news conference.
Menon said that his talks with US President Barack Obama's administration showed the two sides "have very similar approaches."
"We will continue to stay in touch to see how we can help in this regard," he said.
India, which has a large Tamil population, intervened militarily in Sri Lanka in 1987 and reached an accord with Colombo that would include power-sharing with Tamils in the island's north and east.But the accord was never fully carried out. Soon after the agreement, Indian peacekeepers became embroiled in fighting with the Tamil Tigers, with the last troops leaving the island in 1990.
The Tamil Tigers, now banned as a terrorist group by Washington and New Delhi, assassinated former Indian prime minister Rajiv Gandhi in 1991.