The apparent suicide mission, which killed one navy sailor, further dimmed hopes ahead of planned peace talks between the government and the Liberation Tigers of Tamil Eelam (LTTE) in Geneva on Oct. 28-29.
Wednesday's attack on the Dakshina base in Galle came two days after nearly 100 people, mostly navy sailors, were killed in a suicide bombing on a convoy in a north-central district.
"Five Sea Tiger boats ... disguised as fishing boats arrived to attack the Dakshina naval base," the defence ministry said.
"The navy destroyed ... three suicide boats and the other two approached the Galle harbour, self-detonating at the entrance," it said in a statement.
Military officers and the pro-rebel Web site www.tamilnet.com said 15 rebels were on the boats. One navy sailor was killed, and 15 wounded, the military added.
Smoke billowed from two or three spots on the sea front after the explosions and dozens of residents gathered on a road by the beach as troops took position, witnesses said.
News of the raid sparked minor looting in Galle, with some Sinhala criminal gangs targeting two shops belonging to the minority Tamil community, residents and police said.
Police opened fire in the air and dispersed the mobs before bringing the situation under control, they said. A curfew was also imposed on the town.
Elsewhere, at least 20 vehicles being driven by Tamils and minority Muslims were stoned and damaged by Sinhala gangs in the north-central region where Monday's suicide attack took place, Tamilnet said. Local police said the report was false.
Galle is a tourist town about 110 km (70 miles) south of the capital, Colombo, far from the northern and eastern strongholds of the rebels where much of the violence in the Indian Ocean island has been concentrated.
NO BREAKTHROUGH EXPECTED
Wednesday's attack was the first such in the scenic coastal region which is popular with foreign tourists. The port at Galle, home to a 17th Century Dutch-built fort which is now a world heritage site, is also one of Sri Lanka's oldest and biggest.
On Tuesday, the government and the LTTE reiterated their commitment to talks in Geneva, but few expect the talks to achieve a breakthrough in the face of continued fighting and deep distrust.
Hundreds of people have been killed in spiralling violence since late July that shattered a truce brokered in 2002.
A senior LTTE leader blamed the government for the fighting.
"Colombo drew first blood, launching major offensives and air strikes into our territory ... even after we made it clear that we were serious about the talks in Geneva," Tamilnet quoted Tiger political wing leader S.P. Thamilselvan as saying.
"Colombo ... should come forward to cease all offensive acts and allow truce monitors access (to) demarcated frontlines to ensure cessation of hostilities," he said.

Copyright Reuters, 2006