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An Ordinance made in 1985 by the University Grants Commission under the Universities Act, No. 16 of 1978 established the Postgraduate Institute of Archaeology (PGIAR) and the Ordinance, which is cited as the Postgraduate Institute of Archaeology Ordinance, No.2 of 1985 came in to force on the 1 January 1986. The founding Director of the Institute was Prof. SenakeBanadaranayake, The PGIAR began its career in a small room at the Central Cultural Fund’s Head Office at 212, BauddalokaMawatha, with the curtsy of Dr. Roland Silva, the then Director General of the Central Cultural Fund and then it expanded its activities and its library to a Room at the then Institute of Aesthetics Studies’ Art and Design section (currently the Art and Design Faculty of the University of Performing and Fine Arts) on the Horton Place. It was in August 1993 that the PGIAR moved its entire activities and the offices to the current premises, which became its property in 1999.

Since its inception the PGIAR has been playing a pivotal role in Sri Lankan archaeology and archaeology education; the PGIAR has contributed to every aspect of archaeology-scene in the country, and has helped defining the future of archaeology and archaeology education.

As soon as the PGIAR came into being, it became the 'flagship institute for archaeology' in the country and it could bring in large amounts of international funding support to train local archaeologists and to carry out large-scale archaeological projects in the country. Soon PGIAR became the cynosure of Sri Lanka's archaeology and the center of gravity for the archaeological community in the country.

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