Human Rights Watch (HRW) said the appointment of Field Marshal Fonseka to the parliament is a "breach of trust" for victims and families who believed in this government's commitment to deliver justice for war crimes.
"The appointment of former army chief Sarath Fonseka signals that the government may protect senior military leaders suspected of abuses," said Brad Adams, HRW Asia director.
The New York-based rights group said that President Maithripala Sirisena and Prime Minister Ranil Wickramasinghe are sending "worrying signals on accountability at a time when they should be presenting themselves as leaders determined to achieve justice for all Sri Lankans."
"By giving Fonseka a seat in parliament and the highest military rank, they threaten the goodwill their government has generated since coming to power," Adam said.
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In a consensus resolution at the United Nations human rights council last year, Sri Lanka agreed to establish various mechanisms with the assistance of the international community to investigate abuse allegations.
"Sirisena, however, recently elicited concerns about his commitment to justice by saying that it would not be possible to include foreign judges and prosecutors in a justice mechanism, a key component of the resolution," Adams said.
Fonseka commanded Sri Lankan troops to victory over the Tamil Tigers in 2009 under the former regime of Mahinda Rajapaksa.
Immediately after the polls, he was jailed on alleged treason charges by the Rajapaksa regime.
He was eventually released under the international pressure in May 2012.
As many as 100,000 people are thought to have died in the Sri Lankan civil war with LTTE.
The final months of the 26-year war were the most bloody, with the government accused of repeatedly shelling safe zones set up to protect civilians.