Pooneryn had been a Tiger stronghold since 1993 when the rebels dislodged the main military base there.
The rebels had used the coastal area to launch artillery strikes against a military airbase on the northern edge of the government-controlled Jaffna peninsula vulnerable to long-range attacks.
The ministry described Saturday's capture of Pooneryn as the "greatest feat against terrorists" along the island's northwestern seaboard.
"Troops of army Task Force One have entered the LTTE (Liberation Tigers of Tamil Eelam) bastion of Pooneryn," it said, adding troops were also closing in on the rebels' political capital further south.
"Pitched battles are still going on in the area," the ministry said.
"The terrorists are fast withdrawing" to the northwest.
The air force deployed helicopter gunships to pound suspected Tiger strongholds in the Jaffna peninsula Saturday morning in support of ground troops in the area, the military said.
There was no immediate comment from the T