Reinforcements were sent to back up navy ships already in the area.

Brigadier Sanath Karunaratne told the BBC that there was no evidence so far the rebels on the boat were involved in gun-running.

The navy said that Pontos Westron, a peace monitor, was called to the scene to mediate between the two sides.

Correspondents say a major confrontation was avoided.

The navy handed the rebels over to the police. Some appeared in court in Trincomalee where they were bailed and told to reappear in court next month.

The others were released, reports say.

Defence Secretary Austin Fernando told the BBC the government would try to make sure there were peace monitors stationed on board all navy ships in the future.

He said in future such incidents could be avoided if the Tigers informed the monitors of their movements.

June talks

On the diplomatic front, Tamil Tiger negotiator Anton Balasingham left Sri Lanka on Wednesday after extensive consultations with his military leaders.

Some 60,000 people have died in the war

He is expected to return to his base in London where he has lived for the last three years.

Last week the Norwegian deputy foreign minister, who has been mediating in the conflict, visited Tamil Tiger leaders and said peace talks would begin in mid-June in Thailand.

The BBC's, Frances Harrison, reporting from Kilinochchi, the main town under rebel control, says the fact that the Sri Lankan Government allowed Mr Balasingham to return there at all is a sign of how fast the peace process is now progressing.

The easing of restrictions on movement between government and rebel territory have led to thousands of people crossing what were once heavily fortified front lines every day.

Our correspondent says ordinary people who have suffered two decades of conflict are beginning to feel the benefits of peace.

There is a sense that this country is unlikely to return to war, at least in the near future.