By Ranga Sirilal

COLOMBO, Nov. 18 (Reuters) -- Sri Lanka's navy and air force battled Tamil Tiger boats near the eastern port of Mullaitivu on Tuesday, destroying two craft and killing at least six rebels, the military said.

The navy's elite Special Boat Squadron engaged at least eight "Sea Tiger" craft off the shore of Nayaru, just south of the rebel-held Mullaitivu port, military spokesman Brigadier Udaya Nanayakkara said.

After destroying two of them and damaging one, air force Mi-24 attack helicopters pursued the remaining boats and fired on them, the air force said. The targets were hit, but the extent of the immediate damage was not known, the air force said. The sea battle follows the military's capture on Saturday of the entire western coast for the first time since 1993, and continuing advances by soldiers on Liberation Tigers of Tamil Eelam (LTTE) defences in the north of the Indian Ocean island.

Saturday's victory shut off Sea Tiger smuggling and attack operations on the western coast, which is near the south Indian state of Tamil Nadu from which the separatist guerrillas have long smuggled weapons into Sri Lanka.

The military's battlefield successes -- the most significant by any government in the 25-year war -- have fuelled speculation President Mahinda Rajapaksa will call early elections to strenghthen his coalition and ensure another term.

The costly war has added to economic woes on the island, which has started to feel the effects of the global crisis through reduced demand for two top exports, tea and textiles, and costlier credit for the foreign debt it relies upon heavily.

The Tigers are on U.S., E.U. and Indian terrorism lists, and say they are fighting for a separate state for Sri Lankan Tamils, a goal of the war which started in 1983 and is now one of Asia's longest insurgencies.

Tamils say successive governments led by the Sinhalese ethnic majority have discriminated against them since independence from Britain in 1948. (Writing by Bryson Hull; Editing by Valerie Lee)

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