The LTTE on Sunday launched a suicide attack on a cargo ship with two Indians in its crew, sparking off a battle with Lankan Navy off the Jaffna peninsula as security forces continued with their onslaught on rebel bases, killing at least 18 fleeing Tamil Tigers.

Military officials said a boat packed with explosives rammed into the City of Liverpool cargo carrier off Point Pedro as it was leaving the Jaffna peninsula after unloading wheat flour.

"A cluster of Tiger boats attacked the ship while another cluster engaged the navy gunboats," Navy spokesman D K P Dassanayake said.

The ship had a crew of two Indians, seven Indonesians and 10 Sri Lankans. Their fate was not immediately known. Dassanayake said the Air Force was called in.

The attack came two days after the military said it captured Vakari, the final bastion of the Tamil Tigers in the east of the island after weeks of fighting that killed at least 45 soldiers and nearly 331 rebels.

Troops were moving further north of Vakarai on Sunday. They confronted a group of 75 Tigers trying to flee the town at Punani and there was an exchange of fire, the defence ministry said.

The ministry said it recovered the bodies of four Tigers and insisted that they killed a total of 18 rebels and captured all their guns over the weekend.

'In the search operation after the ensuing confrontation, troops recovered four bodies of LTTE cadres, a rocket propelled grenade, 18 T-56 assault rifles', the ministry said in a statement. 

Earlier on Sunday, the military said it had found 37 dead rebels near Vakarai.

Security forces were consolidating their gains and clearing mines in the newly-captured area, the defence ministry said, adding that a total of 14 rebels had surrendered in two days.

Meanwhile, escalating fighting has forced the exodus of 12,000 civilians from Vakarai.

"We have not arrested any from among the refugees, but we are providing them with food, transport and temporary shelter," an officer said from the eastern town of Batticaloa.

Spiralling violence since December 2005 has killed over 3,800 people, despite a Norwegian-arranged truce that was put in place in 2002. Over 60,000 people have been killed in Sri Lanka's Tamil separatist conflict in the past 35 years.