ADEN, April 3 (Reuters) - Fighters loyal to Yemen's president pushed Houthi fighters back from central Aden on Friday after they were reinforced with weapons parachuted into their beleaguered section of the southern port city by Saudi-led warplanes.
The military setback for the Shi'ite Houthis came after days of advances in Aden, the last major foothold of fighters loyal to President Abd-Rabbu Mansour Hadi, despite a week-old Saudi campaign of air strikes to halt the Houthis and bolster Hadi.
Sunni Muslim power Saudi Arabia, alarmed by the Iranian-allied Houthis' march on Hadi's powerbase in Aden, launched its air campaign nine days ago along with regional backers.
The intervention marks Riyadh's most assertive move yet to counter what it sees as a spread of Shi'ite Iran's power in the region, a proxy struggle also playing out in Syria, Iraq and Lebanon.
Aden residents said the Houthi fighters and their allies withdrew from the central Crater district as well as one of Hadi's presidential residences which they took 24 hours earlier.
A spokesman for the Saudi-led coalition, Brigadier General Ahmed Asseri, said the logistical support airdropped at dawn on Friday had helped turn the tide for Hadi's fighters.
"They received the support and they were able to change the situation on the ground, driving the Houthi militias out of the palace and the areas that they had briefly taken control of," he told a news briefing in Riyadh.
The crates of light weapons, telecommunications equipment and rocket-propelled grenades were parachuted into Aden's Tawahi district, on the far end of the Aden peninsula which is still held by Hadi loyalists, fighters told Reuters.
The Houthis, fighting alongside soldiers loyal to former president Ali Abdullah Saleh, emerged as the strongest force in Yemen after they took over the capital Sanaa in September. After they turned on Aden last week, Hadi fled abroad and has watched from Riyadh while his remaining authority has eroded.
Turmoil in the Arabian Peninsula's poorest country comes after year of separatism, tribal conflict, sectarian violence and an insurgency by al Qaeda militants targeted by U.S. drones.
GROUND TROOPS OPTION
Local militia forces said they killed 10 Houthis during the fighting which pushed the Shi'ite movement out of Crater.
Two brothers working for the Red Crescent were shot dead while evacuating wounded to an ambulance, the aid group said. Militia forces blamed the Houthis and said the fighters also killed two patients when they shot at the ambulance taking casualties from Aden's peninsula to a hospital on the mainland.
The coalition, trying to reassert Hadi's standing before any political settlement, has said that sending ground troops into Yemen remains an option.
Officials have declined to say whether special forces have already deployed. Saudi ambassador to Washington Adel al-Jubeir said on Thursday the kingdom does not have "formal" troops on the ground in Aden.
Tribal sources in Yemen said on Friday that Saudi Arabia had started to remove parts of a fence along its border with the northwestern Yemeni provinces of Saada and Hajja.
This could be a prelude to an incursion by ground troops, but may also be part of more modest efforts to secure the frontier area, which on some stretches includes a buffer zone between the two countries.
Saudi Arabia's Ekbariya television said two border guards were killed in an attack after dusk on Friday near Dhahran. It gave no details.
U.S. government sources said on Thursday that, although Washington believes Saudi Arabia and its allies have deployed a military force along the border which is large enough to launch a full-scale invasion, there was no indication that Riyadh was planning such a move soon.
The U.N. relief coordinator Valerie Amos said 519 people have been killed in the fighting in the past two weeks and nearly 1,700 wounded, without specifying whether those figures included combatants.
The fighting has forced Washington to evacuate military personnel from Yemen, a main battlefield in its drone war against al Qaeda.
Suspected al Qaeda fighters stormed a military base in the port town of Mukalla, killing at least five soldiers and ransacking its ammunition store, residents said.
The attack came a day after the militants broke into Mukalla jail and freed scores of prisoners including a prominent local al Qaeda leader, identified by officials as Khaled Batarfi.
The Sunni Islamist al Qaeda fighters are ideologically fiercely opposed the Houthis, who are drawn from a Zaidi Shi'ite minority, but coalition spokesman Asseri said it was Houthi fighters who broke open the jail in an effort to sow chaos.
Al Qaeda and the Houthis "have the same objective, they are in the same trench against the Yemeni population," he said.
Former ruler Saleh is a member of the Zaidi sect who fought to crush the Houthis as president but has now allied himself with them. Street protests in 2011 linked to wider Arab uprisings forced him to step down in favor of Hadi.
In an interview with an Egyptian newspaper published on Friday, Saleh described the Saudi-led air strikes as unjustified aggression and called on Arab states such as Egypt, Algeria or Oman to "stop this senseless war against the rights of people."
(Additional reporting by Mohammed Ghobari and Ahmed Tolba in Cairo, Amena Bakr in Dubai, Mark Hosenball and Phil Stewart in Washington, Megha Rajagopalan and Ben Blanchard in Beijing; Writing by Dominic Evans; Editing by Alison Williams)