Initial results from the first post-war elections in northern Sri Lanka show the governing party has taken Jaffna, the region's biggest city, BBC reported.
But it suffered a surprise defeat in Vavuniya, the other town where polling took place, where a group supportive of the defeated Tamil Tiger rebels won.
Ballots are still being counted in the southern province of Uva.
Turnout was low. Correspondents say people felt the vote took place too early, with thousands still displaced.
The local elections came a day after the defence ministry said it had arrested the new head of the Tamil Tigers, Selvarasa Pathmanathan.
Mr Pathmanathan was detained abroad and was being questioned in Sri Lanka, it added. The rebels have confirmed his arrest.
According to preliminary results, President Mahinda Rajapaksa's governing United People's Freedom Alliance, won control of Jaffna city council in Saturday's election, securing 13 of the 23 seats available.
The Tamil National Alliance, a fractious but broadly pro-LTTE parliamentary grouping, came second with eight seats.
Turnout was only 20%. Monitors said one problem had been that many people did not receive voting cards, for reasons that are unclear. Refugees were also required to apply to vote.
But in Vavuniya, where turnout was 52%, the UPFA was pushed into third place, winning only two seats. The TNA came first with five of the 11 seats on the council, followed by a moderate Tamil grouping.
The BBC's Charles Haviland in Colombo says the result in Vavuniya will be seen as an upset.
For one thing, our correspondent says, the TNA had openly said it did not feel this was the right time for elections, with more than a quarter of a million Tamils still detained in nearby government camps and much of the north depopulated.
And it was generally believed that the government would do well, having a broad coalition led in the north by a powerful and stridently anti-Tiger Tamil party, and having promised a "northern spring" of major development projects that would gradually return the region to normality, our correspondent adds.
As a result of its victory in the war, the government is expected to have done well in the Sinhalese-dominated southern province of Uva.
Voting passed off largely peacefully, although monitors reported scuffles, including one involving a government minister at a camp housing refugees from Jaffna who had been voting remotely.
However, our correspondent says there has not been much chance to scrutinise the conduct of the elections or the campaigns.
Just as it did from the war zone, the government once again kept independent journalists out of the north, and even election monitors said information was hard to come by, he adds.