Tamil Tiger rebels have warned that the sinking of one of their ships by the Sri Lankan navy will have far-reaching implications for the country's peace process.
The navy says its sailors exchanged fire with the rebels
The Tigers say all 11 members of the crew on board were killed when the navy fired on them in international waters, about 300 kilometres (187 miles) off the east coast.
The navy says the rebels fired on them first.
The incident is the most serious clash between the two sides since a ceasefire took effect over a year ago.
We wish to emphasise that this
grave incident will have far reaching implications for the
It comes a week ahead of the next round of peace talks in Japan.
Negotiations are aimed at forging a lasting peace after nearly two decades of civil war in which more than 60,000 people have been killed.
Last month, three rebels blew themselves up after ceasefire monitors boarded their heavily-armed boat off the northern coast of Jaffna as they tried to smuggle arms to the island.
The Tamil Tigers have registered their protest in, what they call, the strongest possible terms over the destruction of their ship.
A statement vehemently condemned the sinking of what they said was a merchant vessel, not involved in any illegal action.
"We wish to emphasise that this grave incident will have far reaching implications for the peace process," the statement said.
The Tigers say the ship was beyond the jurisdiction of the Sri Lankan navy, which, they say, attacked for no reason at all.
The navy's version of events is quite different.
They say their patrol ship was fired upon by the rebel boat when they challenged it off the coast of Mullaittivu.
"We asked the ship to stop and it didn't, so then we started firing across the bow to warn them. They started firing back, and four of our men are injured," a navy spokesman said.
The navy says it suspects the rebel vessel was carrying weapons for off-loading onto smaller boats nearer the Sri Lankan coast.
The international ceasefire monitors are still conducting investigations into the incident.
There has been no clear ruling yet from the monitors on who was at fault.