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More than 5,400 people have been killed in a new wave of fighting since December 2005 when a Norwegian-brokered truce began to unravel.
Naval vessels engaged the ship identified as "Matsuseema" off the island's south-east in the same area where three similar rebel ships were sunk last month, officials said.
The overnight offensive effectively ended the transport fleet of the Liberation Tigers of Tamil Eelam (LTTE), a naval source said, adding that they were awaiting details of casualties.
Tiger rebels were not immediately available for comment.
Sri Lanka's navy has carried out several attacks against suspected Tamil Tiger gun-running ships in recent months.
The Tigers have said they smuggle supplies from South East Asia as well as from former Soviet Union states, according to analysts.
The guerrillas say they also operate a merchant shipping business using front organisations.
In March, the defence ministry said the navy sank two cargo ships believed to be smuggling wea