The British victim, from Surrey, was seen “waving his hands in the air” in desperation before being dragged under water at a lagoon called the Crocodile Rock near Arugam Bay.
The lagoon, known to be crawling with crocodiles, is yards away from popular surf spot Elephant Rock near Arugam Bay on the southeast coast.
Sri Lankan police and the army are said to be searching the shore surrounding the area.
Fawas Lafeer, owner of Safa Surf School, located up the coast from where the incident happened, said: “A local fisherman witnessed a man being dragged into a river, set back from the beach, by a crocodile. The fisherman was on the opposite side of the river and downstream of the incident location.”
He added:“This is the first known crocodile attack in Sri Lanka. Both tourists and locals surf at Elephant Rock, which is a beautiful secluded beach and very safe.
“Crocodiles in Sri Lanka live only in the fresh, backwaters of the jungle. It is almost unheard of for them to come close to the beach. The salt water actually turns them blind.
“Local search and rescue teams are working alongside the police and British Embassy in attempt to locate the man’s body.”
Meanwhile, a Scottish tourist, who wishes to remain anonymous, said: “A British tourist was at a surf spot called Elephant rock.
“There’s a lagoon right next to the sea. He went to the toilet next to the lagoon and was grabbed by a crocodile.
“There are lots in the lagoon. People last saw his arms in the air in the water and then was grabbed under. I was there but didn’t see it happen though. Horrible.
He and his friends had reportedly been staying with friends at the East Beach Surf Resort, in the south-east of the country and had been taking surfing lessons at Elephant Bay when the incident happened on Thursday afternoon.
A colleague at the FT told the newspaper: “We’re all totally stunned. He was a great kid, an Everton fan, super bright. It’s an absolute tragedy.”