What started off as military push to clear LTTE artillery guns from a strategic harbour in northeast Sri Lanka has culminated in a mission to defeat the Tigers completely - with no clear winner in sight.

Emboldened by the capture of a key LTTE stronghold, Sri Lanka has vowed to go on the offensive to seek to destroy the Tigers' entire military machine in the apparent belief it can finally win a two-decade civil war.

But observers say President Mahinda Rajapakse's government and military are understimating the Tigers, and could simply plunge themselves deeper into a war that has killed 4,000 in the past year alone.

"They [government] are on a roll. They think they can win," said one foreign diplomat on condition of anonymity. "I think they are going to try something.”

“I think the fighting's going to continue because neither side has a motivation to stop."

"On the side of the goverment, the hawks are in the driving seat and they're going to go forward because they think they're winning ... and they think they can go all the way," the diplomat added.

"(The Tigers) need to do something to achieve parity," he said.

As troops consolidate their grip on an eastern coastal swathe of what used to be LTTE-held territory, the security forces have the upper hand for now.

But the Liberation Tigers of Tamil Eelam (LTTE) withdrew from the area to fight another day, and analysts say their military apparatus is still intact.

Defence Secretary Gotabhaya Rajapakse, the President's brother, says the military will seek and destroy all LTTE military assets -- including in the northern de facto state they control under the terms of a tattered 2002 ceasefire.

The Tigers, who resumed their fight for an independent state in the north and east after the majority-Sinhalese government ruled out their demands for a separate homeland for minority Tamils, warn they retain their military capability and can resort to guerrilla jungle warfare.

"This is a very clear enunciation that the government will wage all-out war against the Tamil Tigers until they are defeated," said Iqbal Athas, an analyst with Jane's Defence Weekly in Colombo.

"It will mean there is going to be bloody war in the weeks and months to come," he added.

"This very clearly shows that there won't be a peace process until such time as the LTTE agrees (to talks) or the LTTE is militarily defeated."

Athas said the fact the Tigers' powerful naval arm was still intact, and their fighters still retained their capability because they withdrew rather than facing a full frontal assault, meant the LTTE is still a formidable opponent.

"With the capture of Vakarai in the east, the government has certainly has got the upper hand, but that is not to say that the Tigers' military capability has in any way been dented," he said.

"Completely eliminating the Tigers from the east is going to be a gigantic task for the army," he added.

"We can't rule out the fact they (the Tigers) may try to open up new fronts."