Colombo: In a major setback to the peace process, Sri Lanka's tiger rebels on May 30 rejected the government's proposal for financial authority to oversee war reconstruction in Tamil-majority areas.

The Liberation Tigers of Tamil Eelam (LTTE) in a statement criticised the government for not specifying the extent of the rebels' involvement and for rejecting the group's proposal of a powerful interim administration.

"The leadership of the LTTE has rejected the new set of proposals submitted by the government of Sri Lanka instituting a development structure for the rehabilitation and development of the northeast," the rebels said.

The LTTE pulled out of the Oslo-brokered talks in April citing the government's laxity in implementing decisions taken during six months of negotiations, particularly in the reconstruction of war-hit areas and rehabilitation of the displaced.

In a bid to prod them to resume talks, the government earlier this week offered a compromise solution of an administrative body that would oversee development and investment in the islands disputed north and east.

The LTTE, however, said in response "the proposed new structure for rehabilitation and development will turn out to be a new apex bureaucracy administratively linked to several other inefficient and defunct state agencies and mechanisms and will not be able to carry out the immense humanitarian task efficiently".

The rebels last week demanded the immediate setting up of an interim administration giving them virtual control of the north and east which they once claimed as a separate state for ethnic Tamils.

PTI