James Packer

James Packer: "World-class gaming facilities" promised at Crown Sri Lanka. Photo: Louise Kennerley

Sri Lanka has refused to allow casinos at three super-luxury resorts planned in the capital after opponents said they would lead to prostitution, an official says.

It was not immediately known whether the casino ban would endanger the development of the three mega-resorts in Colombo, which have attracted investment worth $US1.3 billion ($A1.40 billion) from tycoons including James Packer, who runs casinos in Melbourne, Perth, Macau and London.

Developers, including Mr Packer, wanted casinos to be part of all three luxury resorts, but the government rejected the plans, Economic Development Minister Basil Rajapakse said.

"We will not allow casinos. That we say very clearly," Mr Rajapakse told Parliament. "They [the promoters] asked, we did not allow, nor will we allow [in the future]."

He did not give a reason for the move, but opposition figures have raised fears that the casinos could lead to prostitution.

Although prostitution is illegal in Sri Lanka, foreign and local prostitutes frequent small-scale gambling operations in the country.

Buddhist monk Athuraliya Rathane, a legislator, said his party opposed the new hotels because of worries gambling would spur prostitution and harm Buddhist culture.

"We voted against these concessions as a warning to the government to correct its course," the monk told reporters in Colombo.

The main opposition United National Party (UNP) staged a demonstration in Colombo on Thursday, accusing the government of encouraging prostitution through gambling.

There was no immediate reaction from developers to the casino ban.

Mr Packer's proposed 450-room Crown Sri Lanka resort - which promises on its website to offer "world-class gaming facilities" - is one of those affected by the casino ban.

Crown had earlier said it was in "detailed discussions" with the government and potential joint venture partners and the deal was subject to "relevant approvals".

The other two resorts are a $US650-million development from local conglomerate John Keells Holdings and a $US300-million project by local businessman Dhammika Perera.

The government gave approval for all three projects to go ahead, minus the casinos, and also granted 10-year tax breaks - despite opposition. The UNP and even some of President Mahinda Rajapakse's own coalition partners broke ranks and voted against the tax concessions, but the government has a comfortable majority in the 225-member legislature and passed the legislation.

The palm-fringed island nation legalised casinos in December 2010, but the legislation has never been implemented. Sri Lankan officials have said they hoped high-end casinos could boost tourist arrivals to 2.5 million annually by 2016 from 1.27 million tourists last year.

Tourism suffered when government forces were locked in a decades-long combat with separatist Tamil Tiger rebels till 2009, but with the end of fighting, the hospitality trade has grown steadily.

AFP