Yemeni government troops took control Saturday of the city of Ataq, two days after deadly clashes between loyalists and southern separatists in the capital of Shabwa province, a pro-government source said.
Fighting between the troops and forces linked to the Southern Transitional Council (STC) broke out in Shabwa on Thursday night, in the latest such confrontation.
At least 11 people have been killed, medical sources told AFP.
Fighters from the Elite Forces -- established in 2016 with the support of the United Arab Emirates -- "were forced to retreat after entering a number of government buildings" in Ataq, the source told AFP.
The source, who spoke on condition of anonymity, also said the government troops took control of one of the Elite Forces' military camps.
"Fighting between the two sides has moved to the outskirts of the city," added the source.
The two have sent reinforcements to the area, the rival sides said on Saturday.
The flare-up in Shabwa comes after deadly clashes earlier this month between the government and troops from the so-called Security Belt, who are dominated by separatists seeking an independent south, erupted in Yemen's de-facto capital Aden.
The STC partially withdrew last week from key sites it occupied in Aden under pressure from Saudi Arabia and the UAE, but it retains control of key military sites.
The STC has since driven government troops out of two military camps in Abyan province.
The separatists have received Emirati support and training, despite the UAE being a key pillar in the Saudi-led coalition backing the Yemeni government against Iran-aligned Huthi rebels.
The Yemeni government accused the UAE of "being responsible for the armed rebellion" and urged it to stop backing "this militia".
While they have also fought against the Houthis in a year-long war, STC forces want to see South Yemen regain the independence it gave up with unification in 1990.
Analysts say the break between Yemeni President Abedrabbo Mansour Hadi's internationally-recognised government and the separatists reflects a wider rift between Riyadh and Abu Dhabi.