MOGADISHU, Somalia - Disagreements between Somali pirates holding a ship laden with tanks and heavy weapons escalated into a shootout and three pirates are believed dead, a U.S. defense official said Tuesday. The pirates denied the report.

The U.S. destroyer USS Howard and several other American ships have surrounded the Ukrainian cargo ship Faina, which was hijacked Thursday and is now anchored off the lawless coast of Somalia. The pirates have demanded a ransom of $20 million and the U.S. Navy cordon aims to prevent them from taking any of the weapons ashore.

The official in Washington who reported the shootout spoke on condition of anonymity because he was not authorized to speak on the record. He refused to elaborate and said he had no way of confirming the deaths.

But the pirate spokesman insisted the report was not true, that his colleagues were just celebrating the Muslim feast of Eid al-Fitr despite being surrounded by American warships and helicopters.

"We didn't dispute over a single thing, let alone have a shootout," pirate spokesman Sugule Ali told The Associated Press by satellite telephone Tuesday.

"We are happy on the ship and we are celebrating Eid," Ali said. "Nothing has changed."

The Islamic feast marks the end of the holy month of Ramadan.

Earlier Tuesday, Andrew Mwangura of the East African Seafarers' Assistance Program cited an unconfirmed report saying three Somali pirates were killed Monday night in a dispute over whether to surrender. Mwangura said, however, he had not spoken to any witnesses.

Elsewhere in Somalia, pirates freed a Malaysian tanker Tuesday after a ransom was paid, according to a Malaysian shipping company.

The blue-and-white Ukrainian ship Faina has been buzzed by American helicopters since Sunday. Pirates hijacked the Faina and its cargo of 33 Soviet-designed tanks and weapons Thursday while the ship was passing through the Gulf of Aden, one of the world's busiest shipping lanes, en route to the Kenyan port of Mombasa.

Ali said the vessel was surrounded by four warships but he could not identify where the ships were from. The San Diego-based USS guided missile destroyer Howard has been watching the pirate ship for several days and has spoken the pirates and crew by radio.

The U.S. defense official in Washington said the pirates have been moving from ship to shore and back again, bringing provisions including livestock.

He said between 40 and 50 pirates were involved in the hijacking, but a second U.S. official said only about 30 of them were on the ship itself.

On Monday, U.S. naval officials said several other American ships had joined the watch, but declined to give details.

U.S. Navy officials said they have allowed the pirates to resupply the ship with food and water, but not to unload any of its military cargo, which included T-72 tanks, ammunition, and heavy weapons that U.S. Defense officials have said included rocket launchers.

The U.S. fears the armaments may end up with al-Qaida-linked Islamic militants who have been fighting an insurgency against the shaky, U.N.-backed Somali transitional government since late 2006, when the Islamists were driven out after six months in power. More than 9,000 people, most of them civilians, have been killed in the Iraq-style insurgency.

Russia has also dispatched a warship to the area, but it will take about a week to get there.

American military officials and diplomats say the weapons are destined for southern Sudan.

Meanwhile, the Malaysian shipping line MISC Berhad said Tuesday that Somalia pirates released the seized palm oil tanker, MT Bunga Melati 2, on Monday, two days after its first vessel was released.

Chairman Hassan Marican said a ransom was paid for both vessels but declined to reveal the amount. All 79 crew on both ships are safe but were traumatized and will undergo counseling, he said.

Piracy has become a lucrative criminal racket in impoverished Somalia, bringing in tens of millions of dollars a year in ransom. There have been 24 reported attacks in Somalia this year, according to the International Maritime Bureau.

Most pirate attacks occur in the Gulf of Aden, one of the world's busiest shipping lanes, to the north of Somalia. But recently pirates have been targeting Indian Ocean waters off eastern Somalia.

In all, 62 ships have been attacked in the notorious African waters this year. A total of 26 ships were hijacked, and 12 remain in the hands of the pirates along with more than 200 crew members.

International warships are patrolling the area and have created a special security corridor under a U.S.-led initiative, but attacks have not abated.