Rebels Holding Yemeni Capital Reject New Prime Minister Appointment

* President names a top associate as PM

* Houthi leaders reject nomination, vow to foil the move

* Impasse adds to weeks of political volatility (Adds more Houthis comments)

By Mohammed Ghobari

SANAA, Oct 7 (Reuters) - Yemen's president appointed a new prime minister on Tuesday as part of a deal with Shi'ite Muslim fighters who control the capital to start leaving the city, but they rejected the nomination and vowed to resist the move.

Houthi fighters seized Sanaa with little resistance last month after overrunning an army brigade affiliated with the rival but moderate Islamist Islah party, making them effectively the power brokers in the country.

The Houthis' rejection of the appointment adds fresh uncertainty to weeks of political volatility following the movement's seizure of the capital of 2 million people. Their takeover came after weeks of protests followed by four days of clashes that killed more than 200 people.

Yemen, which shares a long border with the world's top oil exporter, Saudi Arabia, is trying to overcome years of political turmoil. The upheaval began in 2011 when pro-democracy protests forced long-serving President Ali Abdullah Saleh to step down in favor of his deputy, Abd-Rabbu Mansour Hadi.

The Houthis, who have ties to Iran, have resisted demands to quit the capital, saying that an agreement they signed with Hadi to make them a part of the government gives them the right to stay until a new prime minister has been named.

Hadi appointed one of his top associates to the post on Tuesday, his office director Ahmed Awad bin Mubarak, state news agency Saba said.

Hadi Sultan al-Atwani, one of Hadi's aides, said a committee of the president's top advisors had met in Sanaa and short-listed three names from a longer list of candidates and left it to the president to chose one of them.

ANGRY REJECTION

But the Houthis, officially known as Ansarullah, angrily rejected the appointment and accused the U.S. embassy in Sanaa of involvement in the decision to appoint bin Mubarak.

"Supporters of the embassies appeared after the U.S. ambassador met President Hadi to declare their coup against the will of the Yemeni people and imposing bin Mubarak in line with the will of the embassies," Daifallah al-Shami, a prominent member of the political bureau, said in remarks on his Facebook page.

"This decision has met widespread popular rejection and the people are preparing to resume the revolutionary escalation and complete their revolution which will only end with achieving their objectives," he added, referring to the protests that the Houthis started against the previous government in late July.

The Houthis now control the capital and have been operating oversight committees to supervise the work of various ministries. Last week, they ordered the Finance Ministry to suspend all payments except salaries to state employees.

Abdelmalek al-Ejri, another member of the Ansarullah political bureau, said Hadi had nominated bin Mubarak as prime minister after a committee of advisers representing all major political parties failed to agree on a candidate among five names the president had suggested.

"President Hadi bears the responsibility of this decision," Ejri told Reuters.

Bin Mubarak, who holds a doctorate in business administration from Baghdad University, was born in 1968 in the southern Yemeni port city of Aden. He previously served as a consultant for international projects in Yemen before becoming director of the presidential office.

In March last year, bin Mubarak served as secretary general of Yemen's "conference of national dialog," comprising representatives of all political parties and civic groups which Hadi had convened to map out reforms. (Reporting by Mohammed Ghobari; Writing by Sami Aboudi and Maha El Dahan; Editing by Alison Williams, Larry King)