Seventeen sailors and at least 50 Tigers died in the two-and-half hour gunfight some 50 km out at sea from the LTTE stronghold in the north of the island. The ship was also carrying a member of the Nordic Sri Lanka [Images] Monitoring Mission.

Later, the Air Force bombed and strafed the rebel held region in the north, in what it described as a 'limited response' to the LTTE attack at sea.

On Friday, the LTTE accused the navy of using SLMM officials as "human shields."

"SLMM monitors are used by the Sri Lankan Navy as human shields," the rebels said in a letter to the SLMM, which was also posted on their official website. "We urge you for the last time not to be on board Sri Lankan Naval vessels until further notice from us. If you choose to ignore our warning and request, we are not responsible for the consequences.Please take this as the last warning to you."

Sri Lankan Military spokesman P D K Dassanayake said that the Navy lost the Dvora (fast attack craft) when the LTTE rammed a explosive-laden boat into it, but managed "to save Pearl Cruise II and the 710 men aboard it."

More reports from Sri Lanka | The war in Sri Lanka