The two-decade long civil war in the south Asian island has escalated once more in recent months, with 4,000 deaths since the end of 2005.
More than 70,000 people are thought to have died since the conflict began in the 1980s.
The LTTE is campaigning for an independent state for majority Tamils in the north and east of Sri Lanka.
On yesterday's naval skirmish, which followed the deaths of dozens of rebels during the last week, military spokesman Brigadier Prasad Samarasinghe told the Reuters news agency: "Two Tiger boats were destroyed in a naval battle last night as 26 of their boats were sailing south from Mullaithivu.
"Our navy Dvora [attack boats] have engaged them. We suspect ten of them were killed, as they were two large boats."
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