Yemeni Shiite rebels who have overrun the capital clashed with presidential guards Saturday as they ignored a demand to leave the city following a UN-brokered peace accord.
But while rebels appeared to rule most of the city, Al-Qaeda claimed to have fired a rocket that struck near the US embassy in Sanaa, although the mission said it was unlikely the target.
Fighting erupted overnight after Huthi rebels tried to occupy the home of the national security chief, witnesses said.
Two fighters were killed and 15 wounded during three hours of combat, while a number of insurgents were captured by presidential guards, rebel sources said.
Hours earlier, President Abdrabuh Mansur Hadi had urged the rebels to leave Sanaa, much of which they seized last week.
"Settling accounts by force and acts of vengeance will not build a state," Hadi said.
The rebels swept down from their stronghold in the rugged northwestern mountains last month demanding economic and political reforms.
Last week, they seized key state installations without resistance, most of them in northern Sanaa, after clashes on the city's outskirts with Islamists had killed more than 270 people.
The presidential complex in southern Sanaa is said to be protected by four brigades deployed around the palace and in nearby hills.
The violence has added to instability in Yemen since an uprising that led to the ouster of autocratic president Ali Abdullah Saleh two years ago.
On Thursday, Washington ordered a cut in the number of American government staff in Yemen due to the "unpredictable" security situation.
- US mission 'unlikely' target -
Al-Qaeda-linked Ansar al-Shariah claimed responsibility for a rocket that hit near the US embassy, saying it was in revenge for "Muslim children targeted by a US drone" in the northern Jawf province.
The US embassy said authorities in Yemen were looking into the attack, but that the mission was unlikely the target.
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"We have no reason to believe the US Embassy was target. Chancery unaffected. Yemeni government looking into situation," the embassy said on Twitter.
The United States is the only country operating drones over Yemen, but US officials rarely acknowledge the covert programme.
Despite the rebel takeover of Sanaa, a large graduation ceremony was held Saturday for army, air force and police officers close to the presidential palace.
But contrary to tradition, Hadi did not venture out of his residence to attend.
The peace deal, signed last Sunday, was aimed at putting the post-Saleh transition back on track in impoverished Yemen, which borders oil-rich Saudi Arabia and is a key US ally in the fight against Al-Qaeda.
On a positive note, state news agency Saba said the rebels had now signed a protocol to the deal stipulating that they hand over seized institutions and dismantle armed protest camps in and around Sanaa once a new premier is appointed.
Also known as Ansarullah, they have battled the government for years, complaining of marginalisation.
Analysts say the rebels, who have also seized large areas north of Sanaa, want to establish themselves as the dominant political force in the north, in preparation for a planned federation.
The situation on the ground remained confused.
Interior Minister Abdo al-Tarib earlier urged government forces not to confront the insurgents as they swept across the capital.
Sources close to the presidency have accused Saleh of collaborating with the rebels by using his clout among army chiefs.
Military sources said the rebels aimed to bring army bases in Sanaa and other regions smoothly under their control, by securing the cooperation of top officers.
On Friday Hadi appeared to refer to Saleh backers, saying: "We were let down by those who put their interests above those of the homeland."
Hadi has so far failed to name a new premier.
Yemeni authorities have repeatedly accused Iran of backing the rebels, who also appear influenced by Lebanon's powerful Shiite militia Hezbollah, which is supported by Tehran.
In other unrest, three Yemeni soldiers were killed in an ambush by suspected Al-Qaeda militants in the southern Shabwa province, a military official said.
Al-Qaeda remains active in southern and southeastern Yemen despite military campaigns mounted by government forces against the militants.