The announcement comes amid growing ethnic tension between Muslims and the primarily Buddhist majority Sinhalese on the Indian Ocean island.
Rajith Keerthi Tennakoon, executive director of the Centre for Human Rights Sri Lanka, condemned the "unfathomable police inefficiency" that he said led to the violence.
"Everything is destroyed. Muslims live in fear", he said.
Police said there had been riots and arson attacks since the weekend in Kandy.
While government officials did not specifically mention Buddhist extremists, many comments appeared aimed at them.
Leaders and authorities in the country need to ensure that immediate efforts are made and action is taken against those inciting hate and those wanting to cause divisions among a peace-loving community.
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Muslims make up about 9 percent of Sri Lanka's 21 million people. It was briefly lifted on Tuesday, but soon re-imposed after the body of a 24-year-old Muslim man was found in the town of Digana. However, violence against Muslim shops and buildings continues to be reported.
"I am ashamed as a Buddhist and we must apologize to the Muslims", he declared.
The rights group Amnesty International said the state of emergency should not be a pretext for further human rights violations, given that the country has spent almost 40 years since independence under emergency rule. The government condemns the racist and violent attacks that have taken place over the last few days. The country remains deeply scarred by its 1983-2009 civil war, when Tamil rebels fought to create an independent homeland. A state of emergency was previously in force from 1971 to 2011.
Tensions had been flaring up past year in May 2017 when the hard-line group Bodu Bala Sena's (BBS) General-Secretary Galagoda Atte Gnanasara had been encouraging his supporters to lead another campaign against Muslims following the deadly Aluthgama riots in June 2014, which attempted to create a rift between Buddhists and Muslims.
Prime Minister Ranil Wickremesinghe, who recently assumed additional charge as Law and Order Minister, told Parliament on Tuesday that the government would deal sternly with those who disturb peace, instigate communal clashes and spread racial sentiments. "We are urging our people to remain calm, but when their houses and livelihoods go up in flames, how long will they bear it?"