Troop reinforcements poured into the area and military patrols were stepped up, even as a night curfew was eased early Thursday, local police chief Keerthi de Silva said.
He said 11 people had been detained for questioning by police for breaking the curfew and for possible involvement with the bombing in Galle, a popular tourist destination located 110 kilometres (70 miles) south of Colombo.
A sailor and a civilian were killed when the Tigers rammed explosives-laden boats into three naval craft and sank them.
A pro-rebel website reported that two Tiger boats successfully went ashore and militants carried out rocket-propelled grenade attacks against the harbour while the suicide bombing was underway.
Police said they believed four or five Tigers may have escaped after the attack.
The security boost in Galle came amid fears of inter-communal tensions, the officer said, adding that police opened fire and wounded three men on Wednesday to prevent rioting between the majority Sinhalese and minority Tamils.
De Silva said more troops had also been deployed to Tamil areas to prevent a repeat of the rioting the day before.
Tensions have heightened since a huge rebel suicide bombing on Monday against a naval convoy in the island's north-east killed at least 103 people and wounded 150.
The United States has warned its citizens against travelling to Galle in the wake of the attack. On Tuesday, the US embassy warned on its website of possible attacks in the Sri Lankan capital Colombo.
Peace envoys from Japan and Norway were trying to convince the two sides to attend talks scheduled for later this month aimed at restoring a 2002 truce.
Norway's peacebroker Jon Hanssen-Bauer is due to hold talks with the Tamil Tiger political wing leader S P Thamilselvan in the rebel-held town of Kilinochchi on Thursday to prepare an agenda for talks that the two sides agreed to hold on October 28-29 in Switzerland.
Both the government and the Tamil Tigers have said they are committed to talks despite the escalating violence, but diplomats said arranging a face-to-face meeting was a logistical nightmare, given the mutual mistrust.
The Tigers made no comment on the Galle attack, but said war planes bombed territory held by them in the island's restive east early Wednesday, killing a woman and wounding two more civilians.
The Tigers last hit the Galle port area in December 1997, when they detonated a truck bomb that was targeting the navy commander at the time.
Sri Lanka's military has used Galle harbour to import arms and ammunition for security forces following threats to the bigger port of Colombo, which is a container hub for South Asia.
It is also a popular tourist spot, known as Sri Lanka's "Riviera" for its high-end hotels and pristine beaches. Hotel owners on Thursday said they feared for the tourism industry in the wake of the bombing.
"Before, I could reassure my guests that southern Sri Lanka had never been a target," said one hotelier in Galle on Thursday, describing the attack as "two hours of madness".
"Now, it's on our doorstep," said the manager of a prominent beachside hotel, who did not want to be named, adding that the violence would likely first affect the five-star tourism that had only recently developed on the island.
"All the hotels are greatly concerned. After a year of tsunami and another quiet year because of the situation (in the north), we were all hoping for a good year," the manager said.
The three decades of ethnic bloodshed in the tropical island nation have claimed more than 60,000 lives.

Copyright AFP (Agence France-Presse), 2006