The blast, the latest in a string of attacks in government-held territory in recent months, struck the bus in the remote town of Buttala, about 150 miles southeast of Colombo.
Doctors from Colombo were being flown to the area by emergency helicopters, government officials said.
It was unclear if the bomb was on the bus or planted by the roadside, said military spokesman Brig. Udaya Nanayakkara. In addition to the 23 killed, 67 people were injured, he said.
Senior Superintendent Daya Samaraweera, a local police official, said the blast was caused by a roadside bomb and it was followed by a volley of gunshots fired at the bus.
The 8 a.m. explosion came just hours after the official end of the 2002 cease-fire agreement, which had largely broken down over the past two years amid renewed fighting.
Though scrapping the truce has little direct impact on the raging war, the Cabinet's unanimous decision to end the deal was criticized by peace mediators and foreign governments as a move that would make it even more difficult to end the decades-old conflict.
In the two weeks since the government told officials from Norway, a key broker of the deal, that it would end the cease-fire Wednesday, more than 300 people have been killed in violence along the front lines in the north, according to military figures.
The most immediate effect of the end of the cease-fire is the dissolution of the Sri Lankan Monitoring Mission, one of the few independent groups with access to both rebel-held territory and the government.
The Tamil Tigers have been fighting since 1983 for an independent state for Sri Lanka's ethnic Tamil minority in the north and east after decades of being marginalized by Sinhalese-dominated governments. The fighting has killed more than 70,000 people.
President Mahinda Rajapaksa has said he abandoned the cease-fire because it wasn't working and the rebels used it as cover to build up their military strength. At least 5,000 people have been killed since the cease-fire was signed.
The cease-fire was hailed as a crucial step toward ending the fighting when it was initiated in 2002 and for several years the violence plummeted and trade and travel flowed easily across the frontier between the rebel's de facto state in the north and government-held territory.
But new fighting broke out two years ago, leading to a wide-scale government offensive that forced the rebels out of the cities and towns of the east in July.
Japanese peace envoy Yasushi Akashi, who rushed to Sri Lanka for talks before the cease-fire expired, said Tuesday his country was concerned that the end of the truce would lead to even greater violence and more civilian casualties.