The blast came amid heavy long-range attacks in the same district where troops and Tamil Tiger rebels had been locked in fierce battles.
The three men had found the ammunition and taken it to a cycle repair shop to try and open it when the device exploded at the village of Seruvila, doctors at the nearby Kantalai hospital said.
"Two people were killed on the spot and the third man died after admission to hospital," a doctor said.
The munitions dump at the Allai army camp exploded late Thursday when a long-range gun jammed causing explosions, but there no casualties among troops.
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