At least 140 people, including the main instigator, have been arrested over the unrest, police said.
President Maithripala Sirisena toured Kandy on Wednesday and ordered security forces to use the full force of the law against troublemakers.
Hundreds of Sinhalese including monks held a rally against the violence in Colombo on Friday, while many Muslim shopkeepers closed their doors in protest at the attacks.
President Maithripala Sirisena announced yesterday that he will appoint a three-member panel of retired judges to investigate the unrest that drew concern from rights groups and the worldwide community.
Meanwhile, police said today that there were no incidents of violence from Kandy for the last two days but the troops will be on guard for tackling of any security breach.
He had declared a nationwide state of emergency on Tuesday and deployed the police and military to prevent escalation of violence after clashes between majority Sinhala Buddhists and minority Muslims erupted in other areas of central Sri Lanka's riot-hit Kandy district. The majority are Sinhalese, a largely Buddhist ethnic group.
Muslims make up 10 percent of Sri Lanka's 21 million people.
'We are investigating who funded them, their future plans, and whether they have any local political leadership and whether there was any foreign involvement behind this, police spokesman Ruwan Gunasekara told reporters in Colombo.
Police said almost 150 people were arrested over the violence, including the suspected leader, Amith Weerasinghe, a Sinhalese man known for anti-Muslim activism and outspoken social media posts. A night curfew has been imposed in the city.
The claims are supported by a recent report on Sri Lanka from nonprofit Freedom House, which found "hate speech against minorities continues to foment on various social media platforms, particularly Facebook".
Social media websites were blocked by the government on March 7 following attacks against Muslims carried out by Sinhala Buddhist mobs.
The end of the country's civil war in 2009 was followed by the emergence of hardline Buddhist nationalist groups, such as the Bodu Bala Sena, especially during the term of former president Mahinda Rajapaksa.