About 40 guerrillas were killed in the fighting, it said, as the separatist Liberation Tigers of Tamil Eelam (LTTE) battled to stave off defeat after decades of armed struggle.
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There was no comment from the Tigers, but the pro-rebel Tamilnet website said 69 civilians, including 19 children, were killed by military shelling in an area designated as a "safe zone" by the government.
Sri Lanka's army denies targeting the "safe zone" and in turn accuses the Tigers of fabricating reports of large scale civilian deaths.
Independent verification of the casualty figures is not possible as most journalists, aid workers and international observers are prevented from entering the conflict zone.