Yemeni Shi'ite rebels has denied their snipers were operating inside Saudi Arabia and said Saudi war planes were striking targets across the border.

Saudi Arabia has accused the insurgents of mounting sniper attacks inside its territory even after the rebels offered a ceasefire last week and pledged to withdraw from the kingdom. Riyadh last week declared victory over the rebels.

"We stress that there was no exchange of fire with the Saudi army, nor is there a presence of snipers from any side," the rebels said in a statement.

The rebels said Saudi war planes struck targets on Sunday across the Yemen-Saudi border region that was also being pounded by Yemeni forces. Yemeni soldiers had killed 20 insurgents in the same area on Sunday, state media said at the time.

Yemen's government, also battling a resurgent al Qaeda and southern separatists, has been fighting the rebels on and off since 2004. But the conflict intensified last summer when Sanaa launched an assault to quash the latest upsurge in violence.

There were renewed clashes with the rebels on Monday in the northern town of Harf Sufyan, and a senior army commander was wounded in fighting near Saada, the centre of the mountainous province which is home to many of the insurgents, Yemeni officials told Reuters.

Saudi Arabia stepped into the fray in November when rebels seized some Saudi territory, prompting Riyadh to launch a military offensive. The insurgents accused Riyadh of allowing Yemeni forces to use its territory to attack the rebels.

Western powers and Saudi Arabia fear impoverished Yemen could become a failed state whose instability al Qaeda could exploit. Al Qaeda's regional wing is based in Yemen.

After last week's rebel truce offer, Riyadh demanded Yemeni rebels withdraw snipers, return six missing Saudi soldiers and pull back further from the border to allow for a buffer zone inside Yemen secured by the Yemeni army.

Opposition politician slain

Yemen's government has rejected a separate ceasefire offer from the Shi'ite rebels, and a government source said Yemeni forces had arrested a suspected arms dealer, who had been supplying weapons to the rebels.

His son was also arrested. The official said the pair, accused of supplying machineguns, rocket-propelled grenade launchers and sniper rifles to the rebels, had been flown by helicopter to the capital to face charges.

Yemen's conflict with the rebels, who complain of social, religious and economic discrimination in the Arabian Peninsula state, has rumbled on since 2004. It has displaced around 250,000 people, according to the United Nations.

In south Yemen, a Yemeni provincial opposition politician thought to be active in a southern separatist movement was shot in the street, his party and local residents said on Monday.

The Yemeni Socialist Party said Saeed Ahmed Abdullah bin Daoud was shot dead on Friday in the town of Zinjibar in southern Abyan province, adding on its website that the province was in "an unprecedented state of disorder".

Zinjibar residents said bin Daoud, a member of the Socialist party's leadership committee in the town, was also involved with separatists seeking independence from the central government.

There was no immediate word on the reasons for the killing.

Southern secessionists represent a potent threat for President Ali Abdullah Saleh. North and south Yemen united in 1990 under Saleh, president of the north since 1978.

The merger led to a brief 1994 civil war won by the north. Southerners complain of discrimination and say state jobs and resources have gone to the north ever since.

Saleh has said he is open for dialogue with separatists if they renounce violence, but diplomats see no movement toward this. – Reuters