Sri Lanka's military and Tamil Tiger rebels have engaged in fresh fighting in the east and north of the island.
The rebels want an independent homeland
One military official said many rebels had been killed in the eastern Batticaloa district and several soldiers had been wounded in the north.
The fighting comes the day after the Tigers said they had agreed to hold peace talks at the end of October.
However the two sides have yet to agree to a talks venue. The Tigers favour Oslo, the government favours Geneva.
On Thursday the government outlined plans for a 40% increase in defence spending for 2007 to cover increased weapons procurement and air strike costs.
Thousands of civilians have been caught up in the latest violence.
The army said the heaviest fighting on Friday was around Mankerni in Batticaloa district where they said they had beaten back a Tamil Tiger offensive.
Military spokesman Brig Prasad Samarasinghe told the BBC Sinhala service that the army had seen many dead bodies of Tamil Tiger fighters.
However, the Tigers accused the military of starting the fighting. They said five rebels and at least three soldiers had been killed.
International peace monitor Thorfinnur Moarsson said: "It is totally unacceptable if the military penetrate Tiger territory," Reuters news agency reports.
Staff at one hospital told the BBC Sinhala service that they were treating six wounded soldiers and 25 fighters of the breakaway Tamil group headed by Col Karuna that is now opposed to the Tigers.
Brig Samarasinghe also said fighting had continued further north in Jaffna district where the military had suffered six casualties from heavy fire from the Tigers.
The government had retaliated with air strikes and artillery, he said.
On Thursday the Tigers said they had agreed to attend talks mediated by Norwegian negotiators.
News of the talks came after mounting violence
"We have given our consent to the international facilitators," the rebel's military affairs spokesman Rasaiah Ilanthiraiyan told the BBC Tamil Service.
"But we are concerned about the military posture of the Sri Lankan government."
Sri Lankan officials earlier stated that they had agreed to hold talks with the rebels on 28 and 29 October in Switzerland and were awaiting a response.
The BBC's Dumeetha Luthra in Colombo says there is a cautious optimism over the talks, despite escalating violence.
However, Sri Lanka has been close to peace talks before, our correspondent says, only for them to fail at the last minute.
The government says that it wants to discuss substantive issues which would lead to a long-term solution.
The government's Palitha Kohona said that the government did not want to "be bogged down in minutiae".
Mr Kohona said the government was willing to consider a federal solution within a united and undivided Sri Lanka.
He added that the authorities reserved the right to respond if the rebels continued any military actions.
The rebels have been fighting for an independent Tamil homeland for over 20 years.