Sri Lankan forces sank two suspected Tamil Tiger rebel boats off the northeast coast on Saturday, the navy said.
A flotilla of rebel attack boats including a suicide craft was intercepted by the Sri Lankan navy while it was headed towards Chalai, a naval statement said.
"During the confrontation one enemy log craft and one attack craft was destroyed," an official said.
It said the rebels brought in more boats as reinforcements but these were successfully beaten back.
There was no comment from the separatist Liberation Tigers of Tamil Eelam (LTTE) on the incident.
A military official in the country's northeastern Trincomalee district said some fishing boats might also have been caught in the crossfire.
The LTTE control most of Sri Lanka's northeast coastline, where their headquarters Mullaitivu is located, some 280 km (175 miles) northeast of the capital.
The rebels, fighting for a separate Tamil homeland in the country's north and east since 1983, are currently locked in fierce battles with government troops in the northern Jaffna peninsula.