Troops backed by tanks and helicopters launched a dawn operation in Ghayl Bawazir, about 30 kilometres east of the port city of Mukalla, a security official said.
Seven Al-Qaeda militants, two civilians and an army officer were killed in the offensive, the sources said.
An army spokesman in Hadramawt, quoted by the defence ministry's news website 26sep.Net, said that Ghaleb al-Mansoub, a commander in the 27th Mechanised Brigade, was killed during the operation.
But the army spokesman reported only one dead officer and five wounded. Medical sources told AFP later that the second officer, admitted to hospital in Mukalla, was "clinically dead."
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Medics in Mukalla said two civilians were killed and five others wounded.
Seven Al-Qaeda militants were also killed and "many wounded", according to the statement on 26sep.Net.
The army "destroyed weapon caches and seized explosives and motorbikes used" by the insurgents to carry out attacks, the unnamed spokesman said, quoted by 26sep.Net.
Witnesses said they saw military convoys heading in the direction of Ghayl Bawazir, which officials said had been seized by Al-Qaeda gunmen last month.
Army forces also targeted Al-Qaeda militants in the nearby town of Shihr and the village of Qara, a security official said.
A convoy of 40 armoured vehicles headed to Shihr while other troops laid siege to Qara, where large numbers of militants are believed to be based, he said.
"We congratulate you for your non-stop successes in preserving security and stability and your alertness and your steadfast stand against the forces of terror and destruction," Hadi said.