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Local fishermen in Mannar, 312km north of Colombo, captured 24 boats ferrying 105 men on Wednesday night and handed them over to the police.
A diplomat from the Indian embassy in Colombo was scheduled to visit Mannar to resolve the issue.
The Scandinavian force monitoring the ceasefire between the Lankan government and the LTTE rebels has been informed about this incident.
Mannar is situated near the line of control dividing the government-held territory from that controlled by the Liberation Tigers of Tamil Eelam.
Agencies
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