One person was killed and another critically injured when police fired at fishermen in Chilaw who had been demanding a reduction in fuel prices.
The protestors had been marching from the fish market to the heart of the town, when police first used teargas and then live bullets against them.
Police said teargas had to be fired at a protest in Chilaw to disperse the protestors.
Military spokesman Brigadier Nihal Hapuarchchi said that the Army had not been deployed to Chilaw to control the tense situation.
"The Puttalam Brigade Commander is there. But he had not been given instructions to send troops. We have two battalions in Puttalam which consist a contingent close to about 2,000 soldiers," he said.