The clash occurred Tuesday in Nedunkerny village, the rebels said on their Web site.
Thorfinnur Omarsson, a spokesman for the Sri Lanka Monitoring Mission, a group of independent European cease-fire monitors, said ``it is apparently true'' that soldiers dressed in rebel uniforms were planting Claymore anti-personnel mines in the village.
Two rebels and one Government soldier were killed in the clash while four other soldiers escaped unhurt, he said.
However, military spokesman Brig. Prasad Samarasinghe accused the rebels of fabricating the incident and falsely accusing the soldiers of bearing arms in rebel territory -- a violation of a 2002 cease-fire agreement.
``This is totally fabricated,'' Samarasinghe said. ``We totally deny'' that armed soldiers were in the rebel-held village.
The government and the rebels have blamed each other for a recent spike in attacks that threatens the fragile truce.
Hundreds of government soldiers and dozens of Tamil Tigers have been killed since April, but both sides deny responsibility for the violence.
The Tamil Tiger rebels began fighting for a separate homeland in 1983, accusing the majority Sinhalese of discrimination. More than 65,000 people were killed before the cease-fire.