A spokesman said the ICRC had ordered 35,000 body bags for the battle zone to create what he called a fear psychosis among the international community.
The International Committee of the Red Cross confirmed a routine order of body bags but nowhere near that number.
It said its office in Colombo had been attacked by protesters.
Meanwhile the army says it is closing in on remaining Tamil Tiger positions, confining them to an area of about 200 sq km (124 sq miles).
Government spokesman Keheliya Rambukwella said: "There is no need for 35,000 body bags or for that matter 3,500. They may cancel the order tomorrow. But first they want to create a fear psychosis in the eyes of the international community."
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