Representatives of the key political parties gathered around UN envoy Jamal Benomar late yesterday, a day after a deadline set by the Huthi militia who had forced the president's resignation expired.
On Sunday, the Huthis set a three-day deadline for the parties to resolve the power vacuum since President Abedrabbo Mansour Hadi and Prime Minister Khalid Bahah offered to quit last month.
The militia warned that failure by the political parties to do so would prompt it and its allies to decide the future course of events.
The source, who declined to be named, said talks were centring on the make-up of the council whose task would be to form "a government of national salvation and prepare, within a year, legislative and presidential elections".
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The Huthis, who moved into Sanaa from their northern stronghold of Saada in September seeking a broader political partnership in running the country, seized the presidential palace and key government buildings on January 22, prompting Hadi and his premier to tender the resignations.
The meeting failed to propose a solution to the crisis, but Benomar said talks would resume Thursday.
"As a UN representative, I can only accept a peaceful solution based on dialogue and negotiations," he told reporters late Wednesday.
Representatives of the Sunni Al-Islah (reform) party whose fighters have battled against the Huthis and the socialist party of southern Yemen attended Wednesday's meeting.
The Huthi deadline was set in a statement issued at the end of a three-day meeting attended by the party of ousted president Ali Abdullah Saleh but boycotted by the other major political movements.
Iran has long been accused of backing the Huthis, who descended from their base in Yemen's north to overrun Sanaa.
Benomar has said Hadi and his cabinet are effectively under house arrest, warning that violence could erupt at any time. The crisis has raised fears that impoverished Yemen, neighbour to oil-rich Saudi Arabia, could become a failed state.