Residents in surrounding villages were in despair. ‘‘We are scared. All the schools are closed. We dare not go and get water. We can’t earn money,’’ said farmer HN Gunasinghe.

Two Liberation Tigers of Tamil Eelam (LTTE) mortar bombs fell near a civilian hospital in Mutur, causing some damage to the building, but there were no immediate reports of casualties.

The military said clashes in Mutur continued after dark. Trincomalee town, around 10 km across the harbour, was tense but calm as nearby army positions pounded the rebels.

‘‘We have a duty to protect the people and stop the military from pressuring the people with violent means such as aerial bombings,’’ Tiger military spokesman Ilanthiraiyan said from the northern rebel stronghold of Kilinochchi.

‘‘In that context, we had to take some measures to neutralise these antics.’’ The Colombo stock market fell sharply as fighting escalated, and closed 1.0 per cent down as traders worried about the viability of the ceasefire, which halted a two-decade civil war that has killed more than 65,000 people since 1983.

Tensions between the Tigers and the government have risen markedly since last November, peace talks have been called off, and over 800 people have been killed so far this year. Last week was the first ground battle since the ceasefire.

Elsewhere, a soldier was killed in a mine blast in the northwestern Mannar district and another serviceman shot dead in the same area. On Monday, a senior rebel in the east said an army offensive near the disputed water tank meant the ceasefire was over and war had restarted. ‘‘Denying civilians water is a war crime,’’ said Dr Palitha Kohona, head of the government’s peace secretariat. ‘‘Wars have started over less. Look at Lebanon.’’