The Sri Lankan government plans to increase defence expenditure by nearly 20% to 166.4bn rupees ($1.48bn) from 139.6bn in 2007.
The war has intensified in recent months
Details of the increase were submitted for parliamentary approval by the prime minister on Wednesday.
The bill plans to boost defence spending by a fifth, reflecting the renewed civil war which is taking a toll on the economy.
Around 5,000 people have died since the collapse of a 2002 ceasefire last year.
The government plans to raise overall spending in 2008 by 11% over levels budgeted for 2007, which analysts say will result in higher corporate taxes and cuts in capital projects.
News of the increase in defence spending came as the government and the Tamil Tigers fought each other in new clashes.
The military has been fighting for months in the east
The military says that the Tamil Tigers attacked soldiers guarding their front lines in the north of the country on Tuesday, and that 12 rebels were killed.
They say that a separate clash in the east killed one rebel.
The rebels were not immediately available for comment and there was no independent confirmation of the military's claims.
Meanwhile, the UN's High Commissioner for Human Rights, Louise Arbour, is on the second day of a five-day visit to the country to investigate human rights abuses.
Officials say Ms Arbour will meet President Rajapaksa, other government officials and civil society representatives during her visit.
But she will not be allowed by the government to meet with Tamil Tiger representatives when she travels to the north of the country.
A UN spokesman told the BBC Tamil service that Ms Arbour would travel to the northern Jaffna peninsula later this week.
"I'm not going to be too specific about her agenda," the spokesman said.
Asked if she would travelling to meet Tamil Tiger leaders in their northern stronghold of Kilinochchi, he said: "No she won't be."