President Mahinda Rajapakse asked the Liberation Tigers of Tamil Eelam (LTTE) to return to the negotiating table during a speech to parliament on the 2007 budget, which projects a 45 percent increase in defence spending in 2007.
"Increased violence compelled the government to channel more resources for security and humanitarian relief operations," the president said.
"I once again request the LTTE to give up violence altogether, surrender arms, and restore the mutual trust... in the interest of building a new Sri Lanka," he said.
He said his government was deeply committed to peace and was ready to consider a reasonable solution to the minority issues.
"Only the LTTE has not accepted this so far," he said.
Rajapakse told parliament he was grateful to the international community for trying to revive the peace process and end a spiral of violence since he came to power in November last year.
There was no immediate response by the Tigers to the president's call.
Rajapakse's appeal came as British MP Paul Murphy, an envoy of British premier Tony Blair, began talks with separatist Tamil Tiger guerrillas at the rebel-held town of Kilinochchi, diplomats said.
Earlier in the day, the Tamil National Alliance (TNA) met the president in Colombo to discuss latest developments in the conflict.
The TNA consists of legislators who have never taken up arms but supports the political line of the Tigers.
Rajapakse has asked British police to help investigate last week's assassination of TNA legislator Nadarajah Raviraj, who was gunned down on a highway here last Friday.
The president told parliament that the LTTE resumed hostilities a few days after he became president a year ago and blunted his economic development programme for the Indian Ocean island of 19.5 million people.
Official figures show that more than 3,300 people have been killed in the past year despite a truce in place since February 2002. Peace talks between the government and the Tamil Tigers collapsed last month, sparking fears the country could slip back to full-scale civil war.
The Tamil conflict has claimed more than 60,000 lives since 1972.
Rajapakse, who is also finance minister, presented the 2007 budget against the backdrop of an International Monetary Fund warning that escalating violence could trigger an economic crisis.
Budget estimates projected defence spending would jump to 139.6 billion rupees (1.3 billion dollars) in the 12 months to December 2007 from an estimated 96 billion rupees in 2006.
Rajapakse proposed expanding the tax net, slapped a 10-dollar tax on all tourists visiting the island and decreed that no Sri Lankan should go abroad for employment unless they are paid a minimum monthly wage of 250 dollars.
He said Sri Lankan workers will be offered better training to ensure that their minimum overseas wage reaches 500 dollars.
Sri Lanka expects about two billion dollars this year by way of remittances from Sri Lankans employed abroad, who are the main source foreign exchange for the island.
The budget shows that Sri Lanka's spending next year will be 834 billion rupees against an income of 599 billion rupees. The deficit of 235 billion rupees (2.18 billion dollars) is to be financed mainly through domestic and foreign borrowings.

Copyright AFP (Agence France-Presse), 2006