After molding the UNP around his personality and having successfully built up the party's infrastructure, Jayewardene easily became prime minister. The UNP won an unprecedented landslide victory in the 1977 elections, winning 140 of 168 seats. The SLFP was reduced to eight seats. The Sri Lankan Tamils, however, gave little support to Jayewardene or any other non-Tamil politician. The Sri Lankan Tamils entered the parliamentary election fray under the banner of TULF, which had elevated its earlier demand for regional self-rule to a demand for an independent state, or Eelam (see Glossary). TULF became the largest opposition party in Parliament and captured all fourteen seats in the heavily Tamil Northern Province and four east coast seats. TULF won in every constituency with a Tamil majority on the island, except one. In Jaffna District, TULF candidates won all eleven seats, although forty-seven other candidates contested the seats. TULF originally included the largest Indian (plantation) Tamil political organization, the Ceylon Workers' Congress, but after the 1977 election, the leader of the Ceylon Workers' Congress accepted a cabinet post in the UNP government. The Sri Lankan Tamil demand for Tamil Eelam had never been of central concern to the Indian Tamils, who lived mostly outside the territory being claimed for the Tamil state.

The opportunities for peace that the 1977 UNP electoral victory provided were soon lost. Just before the 1977 elections, Chelvanayakam, the charismatic leader of TULF, died, leaving the party without strong leadership. A Tamil separatist underground (which had split into six or more rival and sometimes violently hostile groups that were divided by ideology, caste, and personal antagonisms) was filling the vacuum left by the weakened TULF and was gaining the allegiance of an increasing number of disenchanted Tamil youths. These groups were known collectively as the Tamil Tigers. The strongest of these separatists were the Liberation Tigers of Tamil Eelam (LTTE), founded in 1972 by Velupillai Prabhakaran. The LTTE was responsible for some of the earliest and most gruesome acts of Tamil terrorism (see the Tamil Insurgency , ch. 5). The LTTE first gained notoriety by its 1975 assassination of the mayor of Jaffna, a supporter of the SLFP. During the 1977 elections, many Tamil youths began to engage in extraparliamentary and sometimes violent measures in their bid for a mandate for a separate state. These measures precipitated a Sinhalese backlash. An apparently false rumor that Sinhalese policemen had died at the hands of Tamil terrorists, combined with other rumors of alleged anti-Sinhalese statements made by Tamil politicians, sparked brutal communal rioting that engulfed the island within two weeks of the new government's inauguration. The rioting marked the first major outbreak of communal violence in the nineteen years since the riots of 1958. Casualties were many, especially among Tamils, both the Sri Lankan Tamils of Jaffna and the Indian Tamil plantation workers. The Tamil Refugee Rehabilitation Organization estimated the death toll at 300.

Data as of October 1988