By Rob Taylor

CANBERRA, Oct 13 (Reuters) - Sri Lanka's war on separatist rebels will not be slowed by international financial turmoil placing pressure on the government's military budget, Foreign Minister Rohitha Bogollagama said on Monday.

Bogollagama, speaking in Australia where he was urged to seek a political end to the 25-year conflict, said Sri Lanka's military would continue to press its latest bloody offensive against the Liberation Tigers of Tamil Eelam, or LTTE.

"We are coming to the final stages of taking on the LTTE. We are quite confident our financial resources can sustain the current engagement," Bogollagama told journalists.

Sri Lanka's army last week pushed to within 2 kilometres (1 mile) of outer Kilinochchi, the strategic headquarters town of the Tigers, located 330 kilometres (205 miles) north of the capital Colombo.

As the offensive intensified, the government proposed a 2009 budget in which total local and international borrowings were projected to rise by 20 percent, in part to fund a 6.4 percent lift in the projected cost of the war, despite the current freeze in global credit markets.

Bogollagama said President Mahinda Rajapaksa had no option but to continue an offensive that gathered pace earlier this year when the government formally annulled a 2002 ceasefire, accusing the rebels of using it to re-arm.

"As far as the LTTE is concerned, we need them to lay down arms and start talking, and it's time the LTTE does that," he said.

Australia's foreign minister, Stephen Smith, said Canberra had "long-standing concerns" about the intensifying conflict and accusations of human rights violations on both sides.

"There was a very clear understanding that no long-term enduring solution can be found simply through the use of military force," Smith said, adding more talks were needed on ideas for a semi-autonomous region in LTTE-controlled northern areas.

At least 40 people were reported killed for a second straight day on Friday as airstrikes continued on Kilinochchi, although casualty figures are impossible to verify as foreign observers are barred from the conflict zone.

Both sides regularly distort gains for propaganda purposes.

Bogollagama is in Australia to talk about "post-conflict" Sri Lanka amid expectations the military could capture Kilinochchi, although conflict analysts also fear a wave of reprisal bombings by the LTTE. (Editing by Alex Richardson)

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