The accident happened when a competing car in the racing event held at the central hill resort of Diyathalawa veered off the track and collided with the spectators, killing seven and injuring three others.
"In the accident, 23 people were critically injured and seven others killed," said police.
Police spokesman Nihal Thalduwa said the deceased included an 8-year-old boy and four track assistants among others
"A total of 23 more have been hospitalised," the police said.
The annual event marking the traditional New Year festivities came to be halted in 2019 with the Easter Sunday attack where 270 people were killed in suicide bomb attacks.
Sunday's resumption coincided with the fifth anniversary of the attack only to be halted by the tragic incident of seven deaths.
Among the dead were four race officials as well as spectators, including an eight-year-old girl, the army says.
The race is organised by the Sri Lankan military, which has an academy in Diyatalawa, and was its 28th run.
More than 100,000 spectators were present. Eyewitness videos show people rushing towards the scene in the aftermath. The event was suspended.
Two of the victims died from their injuries after being taken to the local military hospital. Some of the injured are in a critical condition.
A police investigation is under way.
