A top leader of the Marxist People's Liberation Front Wimal Weerawansa (l) and lawyer H.L. Silva (r) walk out from the Supreme Court in Colombo
Sri Lanka's supreme court has struck down as illegal a negotiated deal between the government and the Tamil Tiger rebels to share some of the billions of dollars in aid money for survivors of December's tsunami. The decision, which is likely to anger the rebels, comes as violence between the two sides is already on the increase, threatening a fragile truce.

The Supreme Court ruled Friday that the government couldn't legally share financial assistance with the Tamil Tigers - because a proposed aid distribution headquarters is based in rebel territory.

Norwegian mediators - who have been trying to save an unraveling 2002 cease-fire - brokered the proposed aid deal. They said they hoped that some of the billions of dollars in assistance pouring into Sri Lanka following December's tsunami would serve to bring the government and the rebels together amid stalled peace talks.

Jehan Perera, director of the National Peace Council advocacy group in Colombo, says the Supreme Court ruling does not mean an end to plans to share the aid.

"The Supreme Court decision, while it creates some difficulties, it is not something that is an insuperable obstacle," said Jehan Perera. "So I think it is a problem that the government can overcome."

He says the government and rebels could simply agree to relocate the aid distribution out of Kilinochchi, the Tamil Tiger stronghold where it had been proposed.

President Chandrika Kumaratunga took a political gamble last month when she approved the Norwegian aid deal to give the Tamil Tigers a role in distributing international funds in areas under their control.

That prompted the Marxist People's Liberation Front to pull out of the ruling coalition in protest, leaving the president with a minority government. It then took the matter to the courts.

For now, the aid distribution deal is suspended.

The Supreme Court also ruled that the proposed fund through which donors would channel international assistance lacks transparency. The court plans to address four other legal challenges to the aid plan in September.

The court's decision comes amid scattered but growing violence between government forces and rebels in Tamil areas in the north and east of Sri Lanka.

Hundreds of police reinforcements have been dispatched after a recent series of tit-for-tat killings.

The rebels have also given the government a two-week deadline to improve security, or they will use their own soldiers to escort senior officials during trips to government territory.

That would constitute a violation of the 2002 cease-fire.

Mr. Perera says despite the rhetoric, neither side wants a return to fighting - at least not on land. But he says a confrontation at sea could be likely between the government and the rebels - who are also called the LTTE.

"The likely course of action the LTTE is going to take is to use armed escorts in the sea to transport their cadre from one part of the country to another part, because the sea has been disputed territory and it can set the stage up for a confrontation with the Sri Lankan Navy," he said.

More than 60,000 people were killed in 20 years as the rebels fought government forces for greater rights for the ethnic Tamil minority. More than 30,000 died in the tsunami, which pounded the shores of 12 Indian Ocean countries on December 26.