The fighting is taking place 250 kilometres (160 miles) north of here, but there has recently been a string of deadly attacks on Colombo that the government has blamed on the rebels.
In late July, the LTTE offered a unilateral ceasefire for the summit, but Colombo brushed off the proposal and stepped up attacks against rebel positions in the north.
The rebel Liberation Tigers of Tamil Eelam (LTTE) offered stiff resistance to a military advance in the Mallavi area, deep inside rebel-held territory on Friday, spokesman Udaya Nanayakkara said.
"We suffered 11 soldiers killed and 20 wounded and the terrorists lost seven killed and 27 wounded," Nanayakkara said, adding that the fighting had subsided by Saturday morning.
The latest clash came as Sri Lanka prepared to stage a two-day summit of the eight-member South Asian Association for Regional Cooperation in the capital Colombo on Saturday.
The defence ministry said helicopter gunships were deployed to provide cover for ground troops