Yemen's newly-appointed Vice President Khaled Bahah, a widely respected figure named this week to shore up the legitimacy of the exiled Saudi-backed government, said on Thursday he hoped to avert a Saudi-led invasion to restore unity to the country.

Arab military exercises planned for Saudi Arabia have raised speculation that Riyadh is considering land operations in Yemen, after three weeks of air strikes that failed to halt advances by Shi'ite fighters now in control of most of the country.

President Abd-Rabbu Mansour Hadi named Bahah, a former prime minister and diplomat, as his deputy this week in an attempt to widen support for his government, now exiled to Saudi Arabia since the Iran-backed fighters, known as Houthis, seized the capital and launched a lightning advance on the south.

Bahah is one of the few figures in Yemen whose popularity crosses regional and sectarian lines. Speaking in the Saudi capital Riyadh at his first news conference since taking the post, he said: "We are still hoping that there is no ground campaign announced with the air campaign."

The Houthis, who have formed an alliance of convenience with army units loyal to former Yemeni president Ali Abdullah Saleh, seized the capital Sanaa in September and then advanced towards the southern port city of Aden.

Establishing the government's legitimacy is central to the Saudi-led campaign to drive back the Houthis and prevent Iran from gaining influence. Iran denies allegations that it provides direct military support and funding to the Houthis.

With the Houthi advance showing no sign of slowing, the prospect is growing that Saudi Arabia and its Arab allies could launch a land war in Yemen, the poorest country in the Arabian Peninsula.

The leading Sunni and Shi'ite Muslim powers in the Gulf, Saudi Arabia and Iran, are already backing opposing sides in proxy conflicts in Syria and Iraq.

NEW FRONT

The United Nations says the latest Yemen conflict has already killed 600 people, wounded 2,200 and displaced 100,000.

Foreign countries have evacuated their personnel. They include the United States, which has been waging a drone war against Yemen's branch of Al Qaeda.

Nearby shipping lanes, including the narrow Bab El-Mandeb passage through which nearly four million barrels of oil are shipped daily en route to the Red Sea and Suez Canal, could also be at risk from the conflict.

Yemeni tribal forces took control of a major southern oil terminal after military forces protecting it withdrew from the site, local officials and residents told Reuters on Thursday.

The tribal group known as Al-Majles Al-Ahli made up of former Al Qaeda militants took over the terminal in the city of Al-Shihr in Hadramawt province, according to local officials and residents in the region, adding that there were no clashes between the soldiers and the tribal forces.

The terminal is one of the major hubs for Hadramout region exporting an average of 120,000 to 140,000 barrel per day (bpd) of crude from fields in the area.

Heavy fighting broke out in and around the central Yemeni city of Taiz on Thursday, residents said, pitting a pro-government army brigade and tribesmen against the Houthis and army units allied to them.

The combat opens up a new front for the Houthis, who have been fighting battles with militiamen across southern Yemen, and signals that control over army units by their ally, former president Saleh, may be weakening.

Bahah called on Yemen's armed forces to support the "legitimate" Yemeni government in exile, a message clearly aimed at army units still loyal to Saleh, who ruled for 33 years until he was toppled after the "Arab Spring" public protests of 2011.

"At this historic moment, we send our call to all the sons of the armed and security forces to act on behalf of the legitimate state," said Bahah.

Saleh has teamed up with his old foes the Houthis against his former backer Saudi Arabia, displaying the cunning that enabled him to lead the fractious country for so long.

However, the Saudi-led air strikes appear to have led some army units loyal to Saleh to switch sides and back Hadi's government.

Bahah said a ceasefire must precede any peace deal and no initiatives would be considered until Hadi and his government return to Aden, where they enjoy the most support.

However, there is no sign of compromise on either side.

A senior Houthi official told Reuters he rejected the prospect that Hadi could return to the country, accusing him of "treason".

Mohammed Al-Bukhaiti, a member of the Houthi movement's politburo, added that the Saudi-led bombing campaign against the must stop "immediately and without any conditions".

In a further sign of political breakdown, United Nations envoy to Yemen Jamal Benomar announced his resignation. The veteran Moroccan diplomat had helped broker the transition plan under which Hadi replaced Saleh three years ago. - Reuters