The soldiers poured into Kandy to reinforce police but arson attacks persisted even though the government has imposed a nationwide state of emergency and suspended the internet locally to quell attacks by mobs from the majority Sinhalese community.
Prime Minister Ranil Wickremesinghe said several arson attacks were reported from Kandy on Wednesday, and internet access curbed to prevent the spread of hate speech.
"We have temporarily blocked several social media websites to prevent them from being used to instigate violence," Wickremesinghe said in a statement.
He said a hand grenade carried by a member of a mob had exploded at the Kandy suburb of Ambatenna, but did not give further details. Police sources said the Sinhalese man who carried the explosive device was killed and 11 others were injured.
President Maithripala Sirisena on Wednesday toured Kandy, where rioters defied curfews and clashed with police who used tear gas to disperse them.
"I have ordered that the full force of the law be used against trouble makers," Sirisena said.
Schools were shut across Kandy, a hill resort famed for its tea plantations and Buddhist relics.
A curfew was extended until Thursday evening in the troubled district popular with tourists, officials said.
Telecommunication providers were instructed to block Facebook nationwide and suspend internet services in the area after police warned that rioters were using social media to urge violence against Muslims.
At least three police officers were wounded overnight at Menikhinna in the district of Kandy, which has been a focus of the new trouble, said police spokesman Ruwan Gunasekera.
Travel warning
Foreign governments issued travel warnings after Sri Lankan authorities granted sweeping powers to police and troops to arrest and detain suspects.
"The state of emergency may include curfews in specific locations," the UK government said on its website.
"You should exercise caution, avoid protests and rallies and comply with local security requirements."
The US State Department said further violence was possible and advised visitors to monitor local media for updates.
The United Nations condemned the violence and urged Colombo "to ensure that appropriate measures are swiftly taken to restore normalcy in affected areas".
More than 150 homes, shops and vehicles belonging to Muslims were set ablaze by mobs of Sinhalese rioters Monday and Tuesday.
The violence began after a man from the mainly Buddhist Sinhalese majority died at the hands of a Muslim mob last week.
The trouble escalated when a Muslim man was found dead in a burned building on Tuesday.
The Sinhalese are the majority ethnic group in Sri Lanka, making up 75 percent of its 21 million people. Muslims make up 10 percent.
There was no immediate estimate of the damage from Wednesday's arson attacks.
Parliament Tuesday issued an apology to the Muslim minority for the violence.
City planning minister Rauff Hakeem described the riots as a "monumental security lapse" and recommended disciplinary action against those responsible.
But the trouble in Kandy is just the latest violence targeting Muslims in the Indian Ocean island.
Mobs set fire to Muslim-owned businesses and attacked a mosque in the east of the country last week after a Muslim chef was accused of adding contraceptives to food sold to Sinhalese customers.
Last November riots in the south of the island left one man dead and homes and vehicles damaged.
In June 2014 riots between Buddhists and Muslims left four dead and many injured. That bout of violence was instigated by a Buddhist extremist group whose leaders are on trial, accused of fostering religious conflict.
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