ADEN Local militiamen in the Yemeni city of Aden said they captured two Iranian military officers advising Houthi rebels during fighting on Friday evening.
Tehran has denied providing military support for Houthi fighters, whose advances have drawn air strikes by a regional coalition led by Saudi Arabia, the Islamic Republic's main rival for influence in the Gulf.
If confirmed, the presence of two Iranian officers, who the local militiamen said were from an elite unit of Iran's Revolutionary Guards, would further worsen relations between Tehran and Riyadh who are vying for dominance in the region.
A Houthi mortar shell fired into Saudi territory on Friday killed three officers and injured two others, a statement from the kingdom's Defence Ministry carried by state media said on Saturday, bringing Saudi casualties in the conflict to six.
Three sources in the southern port city's anti-Houthi militias said the Iranians, identified as a colonel and a captain, were seized in two separate districts that have been rocked by heavy gun battles.
"The initial investigation revealed that they are from the Quds Force and are working as advisors to the Houthi militia," one of the sources told Reuters.
"They have been put in a safe place and we will turn them over to (the Saudi-led coalition) Decisive Storm to deal with them."
Saudi-led air strikes, entering their third week, hit Houthi and military targets throughout the country on Saturday, pounding government buildings and a presidential palace used by the group's leaders in the Red Sea port city of Hodaida.
Ground combat between armed factions battered southern Yemen, killing around 20 Houthi fighters and two rival militiamen, residents and militia fighters said.
Bolstered by the air raids, local armed groups have been resisting the southward advance of the northern-based Shi'ite Muslim Houthis.
Residents said southern fighters ambushed a convoy of Houthis and allied forces loyal to ex-president Ali Abdullah Saleh in a tribal area about 100 km (60 miles) north of the militia's base in Aden, killing 15 of the northerners.
Inside the port city, Houthi forces and local militiamen battled with rocket-propelled grenades and machineguns. Five Houthis and two local fighters died, residents said.
Locals said Houthi forces were shelling civilian areas and trying to push into the Tawahi district, one of the only areas where they have no presence and home to a presidential palace and the city's military port.
While the Houthis deny getting help from Shi'ite Iran and say their armed campaign is designed to stamp out corruption and Sunni al Qaeda militants, Saudi Arabia and its allies describe them as an Iranian-backed threat to regional security.
The United Nations says the conflict, in which the Houthis seized the capital Sanaa in northern Yemen in September, has killed 600 people, wounded 2,200 and displaced 100,000 others.
Saudi Arabia's Defence Ministry statement said more than 500 Houthis had also been killed in fighting on Yemen's border with the kingdom since the conflict began, but it did not say how it arrived at that figure.
(Additional reporting by Ali Abdellati and Angus McDowall; Writing by Noah Browning; Editing by Michael Georgy and Alison Williams)