Community leaders accused authorities of doing little to prevent Sunday night's violence, with the most senior Muslim member of President Mahinda Rajapaksa's government threatening to resign after the decision to allow militant Buddhists to rally in the flashpoint region.
"Three deaths have occurred and 78 people have been seriously wounded in the mob attacks … Places of Muslim religious worship have also been attacked with total impunity," the justice minister, Rauf Hakeem, said as he visited the affected towns of Alutgama and Beruwala.
"The government allowed the Bodu Bala Sena (BBS) to hold their gathering and therefore they must take responsibility for what has happened," he said, referring to a hardline group better known as the Buddhist Force.
Hakeem told reporters he was under pressure from his supporters to quit the government in protest at the failure to prevent the attacks, the latest in a series of violent incidents involving the BBS.
Violence erupted on Sunday night when followers of the BBS staged a protest over a road rage incident. After stones were allegedly thrown at them, the BBS supporters rampaged through the two towns, attacking people on the street and setting fire to property. Several mosques were also damaged.
Local residents said police did little to protect them when the Buddhist mobs began their attack in the mainly Muslim towns, which are about 37 miles (60km) south of the capital, Colombo. Police fired teargas and imposed a night-time curfew but the violence continued for several hours, according to residents.
"We pleaded with the police to come and stop the mob attacking our houses but the police did nothing," said Mujahedeen, a resident of Alutgama's Milton Road where about a dozen buildings were set on fire.
Police said on Monday the situation had calmed down but the curfew would remain in place for a second night. "The situation is largely under control, but the curfew was extended as a precaution," a police source told AFP.
Both towns are popular beach resorts frequented by international tourists, but there were no reports of foreigners or hotels being caught up in the violence.
Rajapaksa said in a statement that he would not allow "anyone to take the law into their own hands" and urged restraint.
The attacks are the latest in a series of religious clashes to hit the island after unrest in January and also last year when Buddhist mobs attacked a mosque in Colombo.
The BBS leader, Buddhist monk Galagodaatte Gnanasara, is on bail after being arrested in May on a charge of insulting the Qu'ran. He is also accused of intimidating lawyers watching the interests of Muslim groups in that case.
The latest unrest came weeks after Muslim legislators asked Rajapaksa to protect their community from "Buddhist extremist elements".
Videos posted on YouTube have shown mobs led by Buddhist monks throwing stones and smashing a Christian prayer centre in southern Sri Lanka in January and attacking mosques while police looked on.
Senior Buddhist monks have been caught on video threatening violence against their moderate colleagues who advocate tolerance.
Sri Lanka, which is facing an investigation into its war against Tamil separatists in May 2009, has also been criticised for its alleged failure to protect minority religious groups.
Muslims make up about 10% of Sri Lanka's population of 20 million.
Nationalist Buddhist groups have in turn accused religious minorities of wielding undue political and economic influence on the island.