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The Liberation Tigers of Tamil Eelam (LTTE) fled the town of Vakarai in the face of the military advance, the defence ministry said in a statement. It gave no details of casualties.
"Following an hour-long effort (Friday) the Sri Lanka army troops finally liberated the Vakarai town and hospital which was used as an artillery launching pad by the terrorists keeping civilians as human shields," the statement said.
Ground troops were consolidating their defences in the Vakarai area, but the fate of civilians was not immediately clear.
The town originally had about 35,000 civilians, but an estimated 20,000 had fled fighting in the area in recent weeks and sought shelter in government-controlled areas of the Batticaloa district.
International aid agencies had earlier expressed fears for the safety of the 15,000 who were trapped in Vakarai and unable to reach safety.
The United Nations and other charities had asked the Tigers to allow civilians to get out of the firing line and also ur