Troops backed by artillery and multi-barrel rocket fire were advancing towards Thoppigala, a key base of the Liberation Tigers of Tamil Eelam (LTTE), a military official said.
The thrust of troops came from Batticaloa district, backed by security forces in adjoining Ampara district, the sources added.
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"We have not had any reports of casualties," an officer in Ampara said. "About 10,000 families in neighbouring areas have fled and sought shelter in government-held areas.
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The latest offensive is the biggest since troops captured the town of Vakarai from the Tamil Tigers in January after weeks of heavy fighting.
The government has publicly said that it wants to clear the eastern province of Tamil Tiger rebels, and Thoppigala is the last rebel bastion in Batticaloa and Ampara districts.
There was no immediate comment from the Tigers about the latest military offensive, the latest in a long