New Tamil Tiger overseas head captured

Sri Lanka has said it has captured and was interrogating the new head of the Tamil Tigers, their most-wanted target since crushing the separatist rebels and their 25-year insurrection in May.

But mystery remained over exactly where Selvarajah Pathmanathan, who ran the Liberation Tigers of Tamil Eelam's (LTTE) lucrative arms and smuggling operations for decades, was arrested.

Pathmanathan is the public face of the LTTE's post-war remnants and the highest-ranking Tiger still alive, after troops killed LTTE founder Vellupillai Prabhakaran in the war's cataclysmic final battle on the northeastern coast on May 18.

The fact that Pathmanathan was in Sri Lankan custody helped push the Colombo Stock Exchange to its highest level in more than 14 months, gaining 0.7 per cent in the first 90 minutes of trade.

Sri Lanka declined to say where he was arrested, after initially saying Pathmanathan - better known by his nickname KP - had been picked up in Thailand.

"We are quite capable of demolishing LTTE activities anywhere in the world. We have the capacity and assistance," defence spokesman Keheliya Rambukwella said.

Thailand's prime minister denied Pathmanathan had been arrested there. The LTTE, in an emailed statement, said he had been arrested by Malaysian intelligence officers on Wednesday, but Malaysian authorities denied that.

Sri Lankan officials said diplomatic necessities precluded naming the exact location where he was arrested.

"It is a sensitive issue and the government wants to respect the wishes of all parties involved," a senior Sri Lankan official told Reuters on condition of anonymity.

Thai authorities arrested Pathmanathan in 2007 and were ready to hand him over on condition their involvement was not known.

But he escaped after Sri Lanka publicised his arrest there, and Thailand denied he was ever in custody, diplomats with knowledge of the incident say. Earlier this year, Sri Lanka was infuriated when a European diplomat met KP in Kuala Lumpur.

Sri Lanka has stepped up diplomatic and intelligence efforts to hunt down Pathmanathan since he assumed the mantle of the new LTTE leader after Prabhakaran's death.

After a brief feud with other LTTE officials overseas, which analysts say was over control of the hundreds of millions in hidden Tiger assets, Pathmanathan emerged as the new leader.

He pledged to create a government-in-exile to push the LTTE's vision a separate nation for Sri Lanka's minority Tamils in a non-violent and democratic way.

One of the original Tigers, Pathmanathan dodged authorities for nearly three decades and built the LTTE's smuggling, weapons procurement and fundraising capacity into a multi-million dollar enterprise known as the "KP Department".

At the height of his powers, KP operated a fleet of freighters for smuggling, dealt in arms bazaars in Eritrea, to Afghanistan and Ukraine and raised millions from fundraising appeals and outright extortion from expatriate Tamils.

Long believed to be in hiding in bases from Myanmar, Malaysia and Thailand, he had dozens of passports and more than enough money to buy his way out of trouble - security experts say the LTTE was earning between $200-300 million (£118-177 million) annually.

However, the LTTE's presence on US, EU, Indian and Canadian terrorist lists sharply curtailed his operations, and KP re-emerged earlier this year when Prabhakaran named his old friend the LTTE's head of international relations.