The government is trying to negotiate the withdrawal of Al-Qaeda linked militants from Zinjibar, capital of Abyan province in southern Yemen, tribal and government officials said on Saturday.
The negotiations, taking place through tribal mediators, are "ongoing," a government official told AFP on condition of anonymity, without giving further details.
Last May, the Partisans of Sharia (Islamic law), linked to Al-Qaeda, took control of Zinjibar, triggering nine months of deadly clashes between militants and government troops.
Hundreds of people have been killed in the fighting and more than 90,000 residents displaced.
Tribal mediator Tareq al-Fadhli said the government's negotiating team comprised six members of parliament headed by the influential tribal chief and lawmaker Awad al-Wazir.
Al-Fadhli said he "passed on the demands of the Partisans of Sharia (to the lawmakers)" at a meeting on Saturday in the southern coastal town of Shaqra, 35 kilometres (22 miles) east of Zinjibar.
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The militants are demanding assurances that "Sharia law be implemented" and government troops "retreat to their barracks," he said.
The Partisans of Sharia will withdraw from Zinjibar and police forces would be allowed back into town under the command of Abyan's current security chief once the conditions are met, he added.
Al-Fadhli said a "second phase" of negotiations would deal with the militants' pullback from other southern Yemeni towns once the withdrawal from Zinjibar is complete.
At least three tribal-mediated negotiation attempts to secure the militants withdrawal from Zinjibar have failed since the town fell.
On January 25, hundreds of Al-Qaeda gunmen bowed to tribal pressures and withdrew from the town of Rada, 130 kilometres (85 miles) southeast of the capital Sanaa.
Rada was overrun on January 16, the latest in a series of towns and cities to fall as Al-Qaeda takes advantage of a central government weakened by months of anti-regime protests.
Heavily armed tribes, which play a vital role in Yemeni politics and society, have been joining the army to battle militants linked to Al-Qaeda who have taken over several regions across the country's south and east.