The bomb, weighing 2.5 kilos (5.5 pounds) was found in a three-wheeler taxi parked in a garage near the Khettarama Cricket Stadium, where troops who will be taking part in the parade are housed.
"The discovery was made following a tip-off," police said.
Security has intensified in Colombo to counter possible attacks by the Liberation Tigers of Tamil Ealam (LTTE) ahead of independence day celebrations on Sunday.
Security forces armed with tough anti-terror laws have increased road blocks and random checks in the city of 600,000 people and are carrying out searches to counter the Tamil rebels, a police official said.
"We have got thousands of constables and troops from the provinces to beef up security in Colombo," a police officer said. "We are maintaining a high state of alert.
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Some roads leading to Colombo were also closed as security forces rehearsed for Sunday's independence day commemorations along Colombo's sea front.
Sri Lanka won independence from Britain in 1948.