March 10 (Bloomberg) -- Sri Lanka is holding elections in Eastern Province, the region captured in July by the army in the worst defeat suffered by the Liberation Tigers of Tamil Eelam in 25 years of fighting for a separate homeland.

``The elections are to be held after a lapse of 14 years, by itself a healthy sign of a return to democracy,'' the Media Centre for National Security said on its Web site. More than 270,000 voters are eligible to choose candidates for councils in Batticaloa district.

Elections, being held to choose 101 members for nine local bodies including the municipal council, are proceeding peacefully with no ``serious incidents'' being reported, police official H.N.B. Herath said in a statement posted on the government Web site. Votes will be counted from 7 p.m. local time.

Before voting started today, a bomb exploded in the capital, Colombo, killing one civilian and injuring four schoolchildren. The LTTE was behind the attack, the Defense Ministry said in a statement.

The defeat in the east left the LTTE with bases only in the north. President Mahinda Rajapaksa's government is seeking $1.8 billion in aid to meet its pledge to rebuild the Eastern Province and bring investment and tourists to a region that has a 426- kilometer (265-mile) coastline of white sands.

``The LTTE is desperate due to the actions of the security forces in the north,'' military spokesman Udaya Nanayakkara said in a telephone interview today. ``They are targeting innocent civilians and schoolchildren. They want to move troops to the south because they are pressurized in the north.''

Cinema Blast

LTTE terrorists detonated an improvised explosive device hidden in a concrete pot near a cinema in Colombo's Wellawatta district, the Defense Ministry said. TamilNet reported the incident saying the area is a Tamil residential suburb.

The government blamed the LTTE for killing two party activists campaigning for the election last month. Representatives of the Tamil Makkal Viduthalai Pulikkal, a breakaway group of the LTTE contesting seats in Batticaloa, were killed when a suicide attacker blew himself up, the government said.

Tamil political parties say the elections won't be free and fair with pro-LTTE groups accusing government-backed paramilitary forces of creating a climate of fear and other organizations charging that Tamil Tiger rebels still operate in the region.

Batticaloa district has a population of more than 486,000 people that is about 88 percent Tamil, almost 11 percent Muslim and 0.7 percent Sinhalese, according to the Media Centre.

Political Parties

Six political parties and 22 independent groups are fielding a total of 831 candidates, according to the centre. More than 6,400 police officers are being deployed, in the largest security operation for a local government election involving a single district, it said.

``The majority of the people welcome the return to normalcy which has enabled them to live in peace'' since the army took control, the Media Centre said.

Voting will be ``totally undemocratic and fraudulent,'' R. Sampanthan, leader of the Tamil National Alliance, said in December. The Eastern Province is being divided into districts that will benefit the ethnic-Sinhalese community, he said at the time. The TNA is the main Tamil party with 22 seats in Sri Lanka's 225-member national Parliament.

``With fear and indifference reigning in the district, a low voter turnout is expected,'' TamilNet said on its Web site on the eve of balloting.

Tamil Settlement

Rajapaksa's government says it wants to reach a political settlement on the issue of Tamil separatism, while eradicating terrorism in the north. It says it won't consider any peace settlement that divides the country of 20 million people. Tamils make up 11.9 percent of the population and Sinhalese almost 74 percent, according to a 2001 census.

The LTTE is designated a terrorist organization by the U.S., the European Union and India.

At least 55 Tamil Tigers and 11 soldiers were killed in fighting in the north since March 6, the Defense Ministry said yesterday. Forty Tamil civilians were killed and Sri Lankan security forces were responsible for 17 ``disappeared'' people in February, the LTTE said on its Web site.

Sri Lanka's army and air force have targeted the LTTE leadership since capturing Eastern Province. Velupillai Prabhakaran, the group's leader, was wounded in an air raid Nov. 26, according to the government, and the head of the political wing was killed on Nov. 2. The LTTE military intelligence chief was killed Jan. 6.

Prabhakaran appeared at a ceremony to honor a former lawmaker killed in an army raid, the LTTE Peace Secretariat said in an e-mailed statement on March 7. It didn't say where the event took place. TamilNet reported that it occurred at an undisclosed location in Vanni in the north.

To contact the reporters on this story: Paul Tighe in Sydney at ptighe@bloomberg.net.

Last Updated: March 10, 2008 07:50 EDT