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"There is terrorism and there is negotiations," said Prime Minister Ratnasiri Wickramanayaka, speaking during a visit to Vietnam.
"Negotiations will go on," he said, stressing his government's commitment to a power-sharing plan with the rebels.
"Ultimately the Tamil people must decide whether they accept terrorism or not, not we.
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Tamil Tiger chief Velupillai Prabhakaran had said Monday in his annual address from a secret hideout that the Tamil minority must have their own independent state.
Prabhakaran, the head of the Liberation Tigers of Tamil Eelam (LTTE), accused the Colombo government of waging military and economic war against Tamils and said they were left "with no other option but an independent state.
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The declaration went back on a 2002 pledge to accept a federal solution under which the 2.5 million Tamils would enjoy broad autonomy.
That commitment had opened the way for a ceasefire and years of Norwegian-brokered peace talks which collapsed in Geneva last month.
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