The team will be reduced from a full strength of 57 members to 30 next month after the Liberation Tigers of Tamil Eelam (LTTE) demanded that three nations pull out after the EU branded the rebels a terrorist organisation.
Up to 30 monitors from EU members Denmark, Finland and Sweden will leave the country by the end of August amid fears of worsening human rights abuses in the three-decade conflict that has left some 60,000 people dead.
Iceland and Norway will increase their numbers to compensate, but it will not be enough to plug the gap, said Thorfinnur Omarsson, a spokesman for the monitoring team.
"We're concerned that we cannot monitor at full power.
That speaks for itself," said Omarsson.
"It might have the effect that we'll not be able to monitor all the incidents that we're aware of.
We will have to wait and see."
The Sri Lanka Monitoring Mission (SLMM) was created four years ago with headquarters in Colombo to carry out patrols to monitor the ceasefire established in 2002