"The safe house was used by both Pottu Amman and (his deputy) Kapil Amman, two of the most wanted terrorists," the ministry said in a statement.
It said the hideout was discovered during clearing operations at Iranapalai on Tuesday.
Amman and Prabhakaran are also wanted by neighbouring India in connection with the 1991 assassination of former prime minister Rajiv Gandhi.
Government troops say they have cornered the separatist rebels in the northeast, having dismantled their northern mini-state in over a year of fierce fighting.
The ministry said the Tigers were still fighting back but were outgunned.
"The LTTE terrorists had made a desperate attempt to breach the military forward defences, only to be left in total disarray," it said of Tuesday's fig