Sri Lanka's fragile peace process on Wednesday suffered another blow when the Liberation Tigers of Tamil Eelam formally rejected Prime Minister Ranil Wickremesinghe's offer to open talks on a compromise and insisted on political authority ahead of a final settlement.

The formal rejection came as three European diplomats launched a fresh bid to restart the stalled peace process.

The chiefs of the British High Commission, and the Dutch and Swedish embassies were travelling to the rebel-held north to urge the LTTE to end their talks boycott and attend a crucial aid donors' meeting in Tokyo next week, officials said.

They said the initiative was part of a European Union (EU) effort to help revive the process deadlocked since the LTTE announced on April 21 they were pulling out of the Norwegian-backed negotiations.

The government had offered financial authority to the LTTE as a compromise and invited the rebels to enter talks on the subject.

"We regret to say that your suggestions are unsatisfactory and therefore unacceptable," the LTTE's London-based chief negotiator Anton Balasingham said in a letter to the prime minister.

"We are prepared to resume negotiations if you reconsider our position and offer us, for our consideration, a draft framework for an interim administrative structure along the lines proposed by our leadership", he said.

"We hope that you will consider our suggestion favourably," Balasingham said.

The government's chief negotiator G L Peiris said it was not averse to the setting up of an interim administration, but the elements of such an arrangement must be discussed by both the parties.

He also reiterated that any structure must conform to the laws of the land and the government could not go outside the constitution, until a final settlement is reached.

Peiris said the differences between them and the LTTE were 'not insurmountable'.

He said the government recognised the need for an administrative structure to address the issues raised by the LTTE.

He said there were informal contacts between the government and the LTTE through the moderate Tamil National Alliance (TNA), and they were hopeful of reviving the peace process.

TNA member R Sampanthan said they were in constant contact with the prime minister in a bid to end the impasse and was hopeful of resumption of talks.