Yemeni troops were on Wednesday preparing to go on the offensive against suspected Al-Qaeda militants entrenched in the southern town of Huta, a security official said.
"The operation will be launched once all civilians have left the city," said the official, who is involved in the preparations for the assault.
Troops have laid siege to the Shabwa province town for the past four days sparking a mass exodus of civilians.
Of the town's 20,000 residents, between 8,000 and 12,000 have fled, a Yemeni Red Crescent report said on Tuesday. But militants have been blocking further departures with a view to using residents as human shields, a security official said.
Overnight, Yemeni troops bombed wooden huts in the Bureika district, three kilometres (two miles) outside Huta, witnesses told AFP.
Fighting between troops and militants also erupted near Kharma, four kilometres (two and a half miles) from the town centre, witnesses said.
Provincial officials estimate that between 80 and 100 suspected Al-Qaeda militants are holed up in the town. Yemen is the ancestral homeland of Al-Qaeda leader Osama bin Laden and has seen repeated attacks by his jihadist network.
The formerly independent south of the country has also witnessed growing discontent with the Sanaa government spearheaded by a coalition of secessionist and autonomist groups dubbed the Southern Movement.
The organisation denies any connection with Al-Qaeda.
One of its exiled leaders, Ali Salem al-Baid, described the campaign against the militants in Huta as a bid to secure funding from donors at the Friends of Yemen meeting that is due to be held in New York later this month.
The campaign is aimed at securing "financial assistance under the pretext of fighting terrorism," Baid said.
The Yemeni government is using Al-Qaeda as a pretext to subjugate the south and "silence the voice of the free south and its peaceful independence movement," he said.
"We invite the sponsors and participants from the Friends of Yemen conference to explore the facts for themselves and see the reality of the tragic situation in south Yemen," Baid added.
South Yemen was independent from the end of British colonial rule in 1967 until union with the north in 1990. The Sanaa government crushed an attempt by the region to break away in 1994.