(Adds TamilNet report)

By Ranga Sirilal and C. Bryson Hull

COLOMBO, Jan 9 (Reuters) -- Sri Lankan troops on Friday handed the Tamil Tiger rebels their second major defeat in a week, capturing the strategic Elephant Pass, and are now gunning for the separatists' last stronghold, the president said.

"Today evening our troops liberated Elephant Pass fully," President Mahinda Rajapaksa said in a televised address, exactly a week after he announced the capture of the separatist rebels' self-proclaimed capital of Kilinochchi.

Elephant Pass, site of one of the government's worst losses in the 25-year war, is as strategic as it is symbolic since the former army base is the gateway to the northern Jaffna Peninsula.

Its capture also clears the LTTE off the main north-south A-9 road for the first time in 23 years, or nearly the entire war.

"I need not explain to you that the A-9 route is symbolic of the unity that exists between the north and the south of our country. The LTTE obtained several million rupees from the fraudulent taxes they imposed," he said.

The seizure puts all of ethnically Tamil Jaffna in government hands for the first time since the battle in 2000 that killed 359 soldiers, left 349 missing and wounded nearly 2,500.

In the streets of the capital Colombo, people lit fireworks and some soldiers shot their guns in the air in celebration. One local TV station aired a montage of battle footage, set to the tune of rock band Queen's "We Are the Champions."

The Liberation Tigers of Tamil Eelam (LTTE) could not be reached for comment, but have repeatedly vowed to reverse a string of defeats that have prompted many to ask if a ground war that started in 1983 is finally nearing its end.

(For some possible scenarios, click [ID:nCOL382416]

TIGERS ON THE RUN

Far south of the war zone, on the border of the Trincomalee and Anuradhapura districts, a claymore mine explosion killed three airmen on patrol and four civilians. Six others were wounded in the blast blamed on the Tigers.

Pro-rebel web site www.TamilNet.com said the tally was 12 soldiers killed and six injured, quoting unnamed Tigers.

With the A-9 open, a mechanised division that has been holding in Jaffna can join the battle now moving east toward the LTTE's last strongholds around the port of Mullaittivu.

In various skirmishes on Thursday, the military said it killed at least five rebels.

The LTTE have been fighting one of Asia's longest insurgencies to create a separate state for Sri Lanka's minority Tamils, many of whom complain of mistreatment since the Sinhalese ethnic majority took over at independence from Britain in 1948.

But many Sinhalese say Tamils enjoyed unfair advantages in terms of education and government jobs in colonial times. The Tigers are on U.S., EU and Indian terrorism lists after carrying out hundreds of assassinations and suicide bombings, including against Tamils who challenged them.

Most of Jaffna has been under army control since 1995, but the Tigers until this week held a mine- and bunker-strewn 12 km (7 mile) by 6 km (3.5 mile) strip on the neck to the mainland. All that changed when the army captured Kilinochchi a week ago, freeing up three army divisions to attack the Jaffna theatre from the north and south simultaneously.

The military and analysts have said the Tigers have been moving their heavy weapons and battle-hardened personnel, estimated to number around 2,000, toward Mullaittivu.

Caught in the war zone are what aid groups estimate to be around 230,000 civilians who fled their homes.

Rights groups say the Tigers use them as human shields, forcible conscripts and labourers. The LTTE denies that. Those who escape end up in government camps where they are scrutinised as potential LTTE sympathisers, rights groups say. (Additional reporting by Shihar Aneez; Editing by Jerry Norton)

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