Zinjibar, capital of Abyan province, had been held by troops of the renegade 15th Brigade which remains loyal to ousted strongman Ali Abdullah Saleh who is allied with the Huthi rebels.
Troops entered Zinjibar, some 50 kilometres (30 miles) east of Aden, after overrunning the brigade's barracks with support from Saudi-led coalition air strikes, military sources said.
They deployed tanks to secure the city and then also retook the coastal town of Shaqra with "little resistance" from rebel forces, a military source said.
But many, including loyalist fighters, lost their lives to mines planted by the rebels before they withdrew.
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At least 19 people were killed and 163 wounded on Saturday and Sunday in and around Zinjibar, Aden health chief Al-Khader Laswar told AFP.
Similar explosions in Aden have reportedly killed dozens of civilians and wounded hundreds.
Zinjibar is the third southern provincial capital from which the rebels have been driven out since loyalists secured Aden in mid-July and Lahj provincial capital Huta on August 4.