The impoverished Arabian Peninsula state has sunk further into chaos since the Saudi-led coalition launched Operation Decisive Storm on March 26 to try to halt the rebel advance.
The turmoil has raised fears that Al-Qaeda will expand its foothold in the deeply tribal country, which borders oil-rich Saudi Arabia and lies near key shipping routes.
A day after Al-Qaeda militants stormed a jail and freed 300 inmates, residents said the Sunni extremists had overrun large parts of Mukalla, the capital of the southeastern province of Hadramawt.
The conflict has sent tensions soaring between Iran and Saudi Arabia, the foremost Shiite and Sunni Muslim powers in the Middle East.
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Iran has angrily rejected accusations it has armed the Huthi Shiite rebels, who have allied with military units loyal to former president Ali Abdullah Saleh to seize large parts of Yemen including the capital Sanaa.
The air strikes failed to stop the rebel forces battling their way into Aden, the last bastion of supporters of President Abedrabbo Mansour Hadi, who has fled to Saudi Arabia.
But after a night of intense bombardment by the coalition, rebel forces quit the hilltop complex early today, according to a senior official.
"The Huthi militia and their allies withdrew before dawn from the Al-Maashiq palace," said the official in Aden, who did not want to be named.
A security source and the official Saudi news agency SPA also reported the anti-Hadi fighters had left the palace.
The rebel forces retreated to the nearby central district of Khor Maksar, where 12 rebels were killed in an overnight attack by pro-Hadi militiamen, a military source said.
"Huthi militias are not in control of any government buildings in Aden," said spokesman Brigadier General Ahmed Assiri.