Two soldiers and three civilians were killed and 28 others were injured in an explosion in Sri Lanka's capital Wednesday morning, police said.

A bus carrying injured army personnel to a medical clinic appeared to be the target in the explosion at Slave Island, an area less than 1 kilometre from Air Force headquarters.

The bus was extensively damaged in the explosion from a claymore mine that had been planted inside a roadside hotel. The hotel, as well as six other shops and offices in the vicinity, were also damaged.

The three civilians killed were two school boys, aged 14 and 16 years, and their aunt who were heading to attend a funeral.

"Though the army bus appeared to be the target it was mostly civilians who were injured," said Prashan Gamage, who as at the scene of the blast.

Hospital sources said that at least 18 people admitted to hospital for injuries in the blast were civilians.

Military officials said they believed that Tamil rebels were responsible for the explosion.

The government and the main opposition United National Party (UNP) condemned the attack.

The attack came amidst comments from military commanders and ruling party politicians, including Prime Minister Ratnasiri Wickremanayake, that they were hopeful that the rebels would be defeated by the middle of this year.

Government troops took control of the eastern province in 2007. However, the rebels are still holding strong in the north. The military has no land access to the area and have been conducting air strikes to hit rebel targets.

During the past two years more than 5,700 people have been killed since rebels renewed their armed struggle and government forces have responded with military operations.

A Norwegian-backed truce agreement signed in 2002 has been disregarded by the two parties since the fighting resumed.

Security in the capital has been stepped up following the incident.