The Liberation Tigers of Tamil Eelam (LTTE) did not accept the latest offer made through Norway's special peace envoy Erik Solheim two days ago, the sources said.
"There is no clarity in the government's offer," the source said. "It does not specifically address the concerns raised by the Tigers."
The source said the government was willing to consider "interim arrangements" to administer the island's troubled Northeast region, but there was no mention of the LTTE's proposal for an Interim Self Governing Authority (ISGA).
Tiger leader Velupillai Prabhakaran last month warned he will resume his "freedom struggle" unless Colombo agrees to discuss his ISGA proposal.
The source said the LTTE's London-based
Balasingham was given the government proposal by Solheim during a meeting in London Monday. Solheim last week held talks with both the president and Tiger leaders on attempts to resume peace negotiations which remain suspended since April last year.
Scandinavian monitors observing a truce between the two sides since February 2002 said increased violations and the absence of talks could jeopardise the entire peace process and plunge the country back into war.