The ABC radio station was ordered off the air following an investigation into a report broadcast Wednesday, media ministry officials said.
"They reported a rebel attack and caused panic among residents in the area," an official said.
"There was no attack at all. But the news report caused a scare.
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Meanwhile, police detained a journalist overnight following a complaint from a minister that the reporter had tried to blackmail him.
The reporter, from the pro-opposition Sunday Leader newspaper, had called the minister for his reaction to claims that he had ordered an institution under his authority to pay his wife's international roaming call charges.
Rights groups have said the situation for journalists has worsened as Sri Lanka presses for a military victory over Tamil Tiger rebels in a 35-year-old conflict that has claimed more than 60,000 lives. More than 5,400 people have been killed since December 2005, according to official figures, while human rights groups say that more than 1,00