COLOMBO Sri Lankan troops broke through Tamil Tiger defenses on Tuesday and aid officials said both sides were making it impossible to save civilians still at risk in the rebel's fast shrinking last redoubt.
The rebels, cornered in a coastal strip where they have held tens of thousands of civilians, accused the military for a third day of shelling the 2.5 square km (1 sq mile) no-fire zone, killing 45 people.
Sri Lanka's government brushed off Western criticism of its continued assault and said the Liberation Tigers of Tamil Eelam (LTTE) were trying to secure a military reprieve at the expense of people they are holding by force.
In Geneva, U.N. humanitarian chief John Holmes said intransigence by both sides had created an "absolutely awful situation."
"The LTTE are clearly still holding onto that population against their will, using them as human shields," he said.
"The government have said they are not using heavy weapons. But the evidence suggests that they are continuing to do so, at least to some extent."
The two sides in Asia's longest modern war have blamed the other for the deaths of hundreds of civilians who have been killed since Sunday in artillery fire.
The allegations have been impossible to verify as the war zone is sealed off to most outsiders and those inside cannot be considered fully independent.
The Sri Lankan military on Tuesday said soldiers and special forces troops had advanced across a narrow causeway into the south of the no-fire zone, leaving the Tigers surrounded on all sides and opening another escape route for civilians.
More than 116,000 civilians fled in the days after troops broke a rebel barricade in late April, which Sri Lanka said refuted the LTTE assertion people had chosen to stay and be part of its goal of building a separate nation for the Tamil minority.
The International Committee of the Red Cross (ICRC) said people were forced to take cover in improvised bunkers and trenches. It did not say whether artillery was being used in Tuesday's fighting.
"Lack of security forced our ferry to stay offshore for the entire day today, only kilometers from the conflict area," ICRC Sri Lanka mission head, Paul Castella, said in a statement. "We need unimpeded access to them in order to save lives."
LTTE peace secretariat head Seevaratnam Puleedevan told Reuters the army had attacked a makeshift hospital on Tuesday, killing 45 people.
Sri Lanka denied responsibility, accusing the LTTE of generating "shock and outrage at supposed atrocities" by forcing government-employed doctors in the war zone to give out false death tolls.
"Giving credence and acceptance to this LTTE-inspired piece of 'news', would wittingly or unwittingly aid the terrorist organization to save itself at the hour of its impending demise," the Sri Lankan government said in a statement.
In Washington, U.S. Secretary of State Hillary Clinton and British Foreign Secretary David Miliband voiced alarm at civilian casualties and urged all sides to "end hostilities immediately and allow for the safe evacuation of the tens of thousands of civilians trapped within the safe zone."
On Monday, Britain and France said Sri Lanka had violated a pledge to stop using heavy weapons and called for a review of its requested $1.9 billion International Monetary Fund (IMF) loan, and an EU trade preference that helps the Indian Ocean island nation's crucial garment sector.
Russia, China, Vietnam, Japan and others on the council believe the war is an internal Sri Lankan matter. The U.N. Security Council has said the IMF loan should not be used to punish Sri Lanka and the EU trade preference is under investigation through next year.
Sri Lanka reversed position in March and sought the IMF loan to help meet a balance of payments deficit, support post-war development and boost foreign exchange reserves hovering around six weeks of import cover.
The global financial crisis has hit dollar inflows from Sri Lanka's tea, garment and diaspora employment sectors, while it struggles with rising import costs and a falling rupee currency.