Sri Lanka's Supreme Court has temporarily suspended a recently signed government post-tsunami aid-sharing deal with Tamil Tiger rebels.
International donors are keen for the deal to go through
It was signed amid huge controversy and caused a split in the government.
The agreement is meant to ensure there is an equitable distribution of aid to all parts of the affected areas.
Meanwhile, the Tigers say the island's ceasefire is being jeopardised by the government's failure to ensure the safety of their officials.
The action against the deal was brought by the People's Liberation Front or JVP, a hardline nationalist party that is opposed to the agreement and withdrew from the ruling coalition in protest just before it was signed.
The JVP argued in court was that the deal was unconstitutional.
Factional fighting has broken out in the east
The court ruled the agreement in principal is legitimate, but objected to specific clauses and issued a temporary suspension.
It said that the Tamil Tigers had failed to ensure that its offices would be accessible to everyone affected by the tsunami, and questioned the management of donor aid.
The BBC's Dumeetha Luthra says that while the ruling does not mean the agreement is now invalid, it is a serious setback to its implementation.
International donors have been keen to push it through as a means of kick-starting the stalled peace process between the Tamil Tigers and the government.
In a separate development, the rebels say that they may have to use their own armed escorts for rebel personnel travelling through government-held areas.
They have accused the military of an attack on Sunday which killed three of their members and a supporter.
President Kumaratunga has called for restraint
The government in turn has accused the rebels of carrying a series of bomb attacks and shootings in recent days.
Our correspondent says that the country now faces a critical moment and that the three-year ceasefire is severely strained.
She says a shadow war has been going on in the east since a split in the Tamil Tiger rebels in March 2004. The rebels accuse the government of supporting a breakaway group, a charge the government denies.
Escalation of violence
The Tigers have warned that the government has failed to provide suitable measures to guarantee the safety of rebel officials travelling through government-held areas.
In a letter delivered to the government on Friday they warned that they may have to start using their own armed escorts, which correspondents say would be a direct violation of the ceasefire.
"If... the military attempts to prevent or hinder such travel, we would be compelled to react suitably. This, we fear, would push the cease-fire agreement into a grave and complex situation," the letter said.
Analysts say it is impossible the government would allow armed rebels to travel through government areas. It would inevitably lead to clashes and another escalation of the violence.
Senior diplomats say there is a real danger the situation could escalate out of control.
The army has increased its presence in the eastern town of Trincomalee in an effort to halt the escalation of violence.
The stand-off comes just weeks after a joint tsunami aid-sharing deal was signed.