The Tigers say they have captured the strategically important town of Oddusudan after an offensive operation, supported by artillery.

Susannah Price in Colombo: "Loss of Oddusudan a major setback for the military"

The exact number of casualties is unclear with conflicting statements. The Tamil Tigers said hundreds of troops had been killed, while independent sources said 200 soldiers died in the raid.

It is not known how many Tiger rebels have died in the fighting.

The BBC correspondent in Colombo, Susannah Price, says the loss of Oddusudan will be a major setback for the Sri Lankan military, as well as an embarrassment for the government ahead of presidential elections next month.

She says the attack will strengthen the hand of those who oppose efforts to negotiate a settlement to the conflict with the Tigers.

Strategic location

The attack on the camp began late on Monday night, with Tamil Tiger rebels using mortars and grenades to break through army defences.

The Tigers are reported to have planted their flag in the military complex.

Sri Lankan air force helicopter gunships were pressed into service to beat back the Tigers, army officials said.

The town is strategically placed between a government positions and rebel stronghods along the northern coast.

The army captured the town from the Tigers last December.

One report quoted residents in the nearby town of Vavuniya as saying they heard the sound of artillery fire as well as intensified helicopter activity in the area.

Ongoing fighting

In the past few days, heavy fighting has taken place in the Wanni region in northern Sri Lanka. Both sides are said to have suffered heavy casualties.

On Monday, the defence ministry said helicopter gunships and Israeli-built Kfir ground attack aircraft were used in the attack.

Last month, more than 100 soldiers and Tigers died during fighting in the Kilinochchi district.

Soon after the fighting, Sri Lanka's President, Chandrika Kumaratunga, ruled out peace talks with the Tamil Tigers.

The peace process in Sri Lanka had effectively been stalled for sometime, especially after the killing of a moderate Tamil politician in July.