Members of the rebel Liberation Tigers of Tamil Eelam (LTTE) snatched the infant and chopped the woman to pieces at Seeruwila in one of the most gruesome killings in recent times, defence ministry spokesman Prasad Samarasinghe said.
"They engaged the local police in a fire fight after hacking the woman to death," Samarasinghe said. "This is a killing clearly aimed at provoking a communal backlash.
They want to create a refugee situation.
"They could have shot her dead, but they did it in the most horrible manner -- she was cut to pieces," Samarsinghe said.
He said the Tigers had shot dead six farmers from the Sinhalese community in the same area on Sunday evening in an attack designed to fuel inter-communal tensions.
Police clamped a local curfew to maintain law and order and stepped up security.
In neighboring India, the government said it was "deeply concerned at the recent escalation in violence in the eastern part of Sri Lanka which has resulted in the ceasefire coming under serio