(Updates with rebel denial) By Ranga Sirilal COLOMBO, Sept 17 (Reuters) - Sri Lankan jets blasted a hideout of the leader of the Tamil Tiger rebels on Wednesday during an intensifying thrust to retake insurgent-held territory, the military said. But a pro-rebel web site, www.tamilnet.com, said the attack was on a "densely populated settlement" of refugees, and it wounded two people including a 14-year-old boy. There was no independent confirmation of the strike on the building, which is in the Kilinochchi district roughly 300 km (186 miles) north of the capital Colombo. Both sides routinely accuse the other of killing civilians and distort casualty figures to their benefit in what has been a long-running propaganda duel. Independent confirmation is difficult as the military bars media from the war zone. The military believes Velupillai Prabhakaran, the elusive founder and leader of the Liberation Tigers of Tamil Eelam (LTTE), is hiding somewhere in Kilinochchi district. On Tuesday the military said they were within 5.5 km of Kilinochchi town, the LTTE's defacto capital and a prized target as Sri Lanka's armed forces try to finish a foe it has battled since 1983. "Fighter jets engaged a location frequented by the LTTE leader Prabhakaran in Vaddakachchi," Air Force spokesman Wing Commander Janaka Nanayakkara said. "Pilots confirmed the location was completely destroyed." Another air strike hit an LTTE ammunition store on the north of the island on Wednesday. Nanayakkara had no information on casualties. "Residents complained that Colombo had begun indiscriminate bombardment, as feared earlier ... after it instructed foreign aid workers to vacate," TamilNet said. It did not name any residents. The government on Sept. 9 ordered foreign aid workers out of the war zone, and the last U.N. team left on Tuesday. The air force has flown near-daily air strikes against the LTTE in the last three months as part of a stepped-up offensive. On Wednesday, the rebels accused the air force of killing civilians in a bombing run the day earlier. "Three civilians were killed instantly when the Sri Lankan Air Force bombed an area north of Murukandy in Kilinochchi," the LTTE said on its official www.ltteps.org web site. Rights groups say both sides have been responsible for murders, abductions and indiscriminate fire in a war that has killed 70,000 and is one of Asia's most persistent insurgencies. Soldiers killed 23 guerrillas in other skirmishes in the north of the Indian Ocean island nation on Tuesday, the military said. One soldier was killed and 10 were wounded in the same fighting, it said. The Tigers have been fighting since 1983 to establish a separate homeland for Sri Lanka's ethnic minority Tamils, in a nation that has been ruled by majority Sinhala-led government since independence from Britain in 1948. (Writing by Bryson Hull, Editing by Sanjeev Miglani)
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