A makeshift hospital inside the last scrap of land held by the Tamil Tiger guerrillas was hit by shelling, killing 64 people, according to Sri Lankan rebels.
The army has denied the report and said the Liberation Tigers of Tamil Eelam (LTTE) may have set off explosions near the hospital.
Sri Lanka has disregarded heavy Western pressure to call a truce to protect tens of thousands of civilians trapped by the Tamil Tigers in the war zone, a five square kilometre strip of coast, which is generally off-limits to outsiders.
The pro-rebel website www.TamilNet.com said two shells killed 64 people and wounded 87 at the field hospital in Mullivaikal.
However, military spokesman Brigadier Udaya Nanayakkara said troops were respecting President Mahinda Rajapaksa's order from Monday not to use heavy weapons, air strikes or artillery.
The LTTE insists people are staying in the area by choice, despite an exodus of 115,000 to government areas in the last two weeks.
The military dropped leaflets on Friday with a message from President Rajapaksa urging people to leave and promising them safety in government-held areas.
The rebels have vowed not to surrender in their fight for a separate state for Sri Lanka's Tamil minority. The government has refused to call a truce because it says the LTTE has spurned two this year already and would use a ceasefire to rearm.