COLOMBO, June 28 (Reuters) - A Tamil Tiger flotilla attacked two small Sri Lankan vessels near a navy base north of Colombo on Wednesday, the military said, killing five sailors and injuring three others.

The Navy said about 20 small Liberation Tigers of Tamil Eelam (LTTE) vessels were involved in the clash, the latest in a series many fear could rekindle civil war on the island. Helicopter gunships and fast-attack boats were deployed to the area.

Officials had earlier said there were no navy fatalities in the clash about 100 miles (165 km) from Colombo, but said the Tigers had prevented them from getting near one badly damaged boat.

"We have recovered the bodies of five sailors. The bodies were in the sea near the damaged boat," said a military spokesman. He added the navy believed about 12 rebels had been killed. The Tigers say only one of their fighters died.

The incident occurred not far from the site of other clashes with the Navy in recent months though well south of the border to rebel-controlled territory.

Sri Lanka's stock market closed 0.4 percent lower on news of the attack, which comes after a series of ambushes and military clashes that have killed around 700 people so far this year.

The Tigers blamed the Navy for provoking Wednesday's clash.

"Our Sea Tiger boats were moving in that area when the Sri Lankan Navy interrupted them and opened fire," said rebel media coordinator Daya Master by telephone from the rebels' northern base of Kilinochchi. "One of their boats sunk."

In a separate incident, the military said one soldier was killed and three civilians wounded when Tiger rebels attacked an army camp in the eastern district of Trincomalee with mortar fire, while residents said five Tamil youths had been stabbed to death in a separate attack.

Wednesday's violence came as the military prepared for the funeral of the Army's deputy chief of staff, who was assassinated by a suspected rebel suicide bomber on Monday.

"That attack was criminal," said 65-year-old retired hospital worker S.M. Gunasekara as he waited in Colombo for the funeral cortege to pass.

"We need international military support. But the international community only talk."

Several schools in Colombo were evacuated on Wednesday morning after a bomb threat, which turned out to be unfounded.

"A meticulously orchestrated campaign with sinister motives has been unleashed by interested parties in order to infuse irrational fears and uncertainties among the public and thereby disrupt and cripple normalcy and sanity in society," the Defence Ministry said in a statement.

Sri Lanka's tortuous peace process is deadlocked and teetering on collapse. The government and rebels are sharply divided over the Tigers' demands for a separate homeland for minority Tamils in the north and east.

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