The rioting erupted after a Muslim woman, whose son was reportedly kidnapped last week along with another Muslim youth, committed suicide on Wednesday.
The Tamil Tigers have denied kidnapping the two missing youths.
Police say heavily armed troops have been patrolling the town and the surrounding areas after an overnight curfew and have been firing into the air to separate rioters who were armed with automatic rifles, knives and sticks.
Security forces blamed
Bomb explosions and gunfire added to flood of people aiming flee the violence, military officials said.
He also accused the Tamil Tiger leadership of failing to prevent attacks from the armed Tamil youth who live in rebel-held territory
Mr Hakeem said: "More than 100 houses of Muslims have been destroyed. Some shops owned by Tamils were also torched."
Defence Minister Tilak Marapone visited the area on Friday in an attempt boost troop reinforcements.
A spokesman for the Scandinavians monitoring the ceasefire told the BBC he was trying to arrange a peace meeting between the Tamil Tigers and Muslim leaders this weekend.
He expressed concern about the possible impact of the violence on the next round of peace talks between the Tamil Tigers and the Sri Lankan Government, due to take place on 29 April.