(Updates with president, Norway envoy comments, details)

By Simon Gardner

KILINOCHCHI, Sri Lanka, July 11 (Reuters) - Sri Lankan troops drove Tamil Tiger fighters from their last stronghold in the island's east on Wednesday, the military said, but the rebels vowed to carry on with a guerrilla-style war.

The capture of a jungle area called Thoppigala, which had been in Tiger hands since the mid-1990s, rounds off a significant territorial setback for the rebels who have lost vast swathes of terrain in the east this year.

But while the army has had the upper hand in recent months, the Tigers' military machine is still intact in the north, where they run a de facto state.

Analysts fear the conflict that has killed nearly 70,000 people since 1983 could run for years.

"We have reached Thoppigala and captured Thoppigala and now there are no LTTE (Tiger) holdings," said military spokesman Brigadier Prasad Samarasinghe.

"In and around Thoppigala there are small pockets and camps which we are clearing. West of Thoppigala we have to clear but the Thoppigala is captured."

President Mahinda Rajapaksa issued a statement congratulating the security forces on the advance.

The military says it has killed nearly 450 rebel fighters in the Thoppigala area, in the eastern district of Batticaloa, since February and that around 20 of its men have been killed.

The Tigers say 60 of their guerrillas have been killed and believe they have killed three or four times that number of troops.

"Yeah, the government controls a very large part of the east at the moment. We still operate there, as we have operated for the past 25 years," Tiger military spokesman Rasiah Ilanthiraiyan told reporters in the northern rebel stronghold of Kilinochchi.

"We will adopt every possible mode, tactic and tool to engage the enemy," he added. "If they want to come to the north, let them come and see what happens."

The Tigers control a large section of the island's far north and are fighting for an independent state in the north and east.

WAR HEADS NORTH?

The government has vowed to continue with its drive to destroy all Tiger military assets, and analysts say the focus of fighting is now shifting to the far north.

Ilanthiraiyan said the Tigers would use all of their arsenal -- which includes suicide bombers and light aircraft that they smuggled into the country in pieces and reassembled -- to battle on.

"If they come into our territory (in the north), they will find stiff resistance from our people who are prepared to face any kind of threat. And we will take all measures to prevent those forces destroying our homeland and killing our people."

Norway's ambassador and mediator Hans Brattskar flew to the north to hold talks with the rebels and to meet aid workers on Wednesday, in what was seen as a courtesy call before the end of his term as envoy. In 2002 Norway brokered a now tattered ceasefire between the Tigers and the state.

Brattskar said the Tigers saw the embers of a 2002 ceasefire pact, which still holds on paper but has collapsed on the ground, as the foundation for any eventual return to peace talks. But the government argues the pact is too soft on the rebels.

"The situation right now is quite difficult," Brattskar told reporters after meeting with rebel leaders in Kilinochchi. "I see this as a long-term involvement from our side and you have to continue to be patient."

The government aims to hold local government elections in the east by the year-end in a bid to cement a civilian administration there.

(Additional reporting by Ranga Sirilal in COLOMBO)

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