COLOMBO (Reuters) -- Sri Lankan soldiers battled Tamil Tiger rebels house-to-house in the last town the separatist rebels control, seizing more territory and pushing them closer to a final standoff, the military said on Friday.

The Tigers are now confined to less than 58 square km (22 sq miles) and are being pushed toward a 12-km no-fire zone on the Indian Ocean island's northeastern coast where tens of thousands of people fleeing fighting have taken refuge.

It is there on a narrow strip of coconut groves that military commanders expect to have a final battle with the Liberation Tigers of Tamil Eelam (LTTE), who since 1983 have waged what is now Asia's longest-running civil war.

Soldiers are now in the town of Puthukudiyiruppy, which is around 4 km from the lagoon that bounds the no-fire zone on the inland said, military spokesman Brigadier Udaya Nanayakkara said.

They are operating in the built-up area, but have not completely captured the whole town itself, he said. The fighting is small arms and small groups and mortars. It's house-to-house clearing.

The U.N. refugee agency on Friday urged the Sri Lankan government to expect up to 85,000 people to flee the fighting in the coming days or weeks.

Most are squeezed inside the no-fire zone, and nearly all of 36,000 people who have fled this year came out when troops reached an older no-fire zone set up by the army further inland.

The military says there are no more than 70,000 people trapped by the rebels in the fighting, while aid agencies estimate the number to be around 200,000.


Meanwhile, police on Friday questioned Nadesapillai Vidyadaran, editor of the Tamil-language Sudar Oli newspaper, who was arrested the day before at a funeral of a relative.

He is being questioned. There are several issues and one issue is about the LTTE aircraft, said police spokesman Ranjith Gunasekara said.

He was referring to dual air raids by the rebels' ramshackle air force on the capital Colombo a week ago, in which both planes were shot down. One crashed into government building in the capital, killing two people and wounding 53.

The New-York based Committee to Protect Journalists (CPJ) and Reporters Without Borders both condemned the arrest and demanded his immediate release, saying his arrest had been for critical reporting of the government.

Another Tamil journalist, T.S. Tissanayagam, was jailed in March under powerful emergency regulations, in a case that has drawn criticism. In both cases, the government has said evidence had pointed to possible links to the Tamil Tigers.

Last month, the politically active editor of an opposition-leaning newspaper was killed as he drove to work, the studio of the nation's largest private broadcaster was trashed by gunmen and another editor was stabbed by attackers.

That prompted opposition accusations that the government was behind the attacks. The government has denied involvement, and President Mahinda Rajapaksa has pledged thorough investigations to end a long history of impunity for such attacks in Sri Lanka.

Sri Lanka has a long history of violence against journalists that rarely gets prosecuted. They have been kidnapped, beaten and killed, and several have fled the country after being accused of being traitors in state-run media.

(Additional reporting by Ranga Sirilal; Editing by Valerie Lee)