Members of the Liberation Tigers of Tamil Eelam (LTTE) and the breakaway "Karuna" group clashed in Vavuniya district.
"Three people have been killed and we are trying to figure out their identities," said a police official by telephone from Vavuniya, 260 kilometres (165 miles) north of the capital.
The violence came amid fears of renewed fighting in the east between security forces and the main LTTE group. The breakaway faction is most active in the eastern province.
Sri Lanka's army chief Sarath Fonseka said last week that troops will move to clear the eastern province of LTTE rebels.
The United Nations and international truce monitors have voiced grave concern for 35,000 "desperate civilians" caught in the crossfire between troops and the rebels at Vakarai.
Some 16,000 people have fled the eastern area.
The LTTE is fighting for independence for the island's minority 2.
5 million Tamil community. The conflict has claimed more than 60,000 lives since 1972.