Police said they widened the curfew to Beruwala, a Muslim-dominated area, after initial violence broke out in the neighbouring town of Aluthgama.
The curfew was imposed following tensions which prevailed in the area after a Buddhist majority nationalist group staged a march in a Muslim-dominated area which they claimed had been stoned.
Many activists from both sides as well as bystanders were injured during the evening clashes.
The police used tear gas to disperse the crowds but failed to prevent the clashes until the Special Task Force (STF) arrived at the scene and used water cannons and tear gas to disperse the crowd.
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The roots of the incident go back to last Thursday when a Buddhist monk alleged he had been beaten up in the nearby Beruwala town after a traffic incident.
President Mahinda Rajapaksa has announced an investigation.
"The government will not allow anyone to take the law into their own hands. I urge all parties concerned to act in restraint," he tweeted.
Tension has recently been high between the two sides, with Muslims calling on the government to protect them from Buddhist-inspired hate attacks, and Buddhist accusing minorities of enjoying too much influence.