Yemeni separatists refused to give up recent territorial gains during ongoing talks with Saudi and Emirati envoys, a source close to the separatists told AFP on Saturday.
The UAE-backed Southern Transitional Council (STC) earlier this month swept through portions of southern Yemen in a takeover they say aimed to expel Islamists and halt smuggling for the benefit of the Iran-backed Houthi rebels.
The STC is part of the internationally recognised government, which is a patchwork of groups held together by their opposition to the Houthis.
The separatists' advances have raised fears of friction with other government groups and that the STC might secede in an effort to revive the once independent South Yemen.
The STC said in a statement that its leader Aidaros Alzubidi met for talks late Friday with a delegation of Saudi and Emirati military commanders.
A source close to the separatists told AFP the delegation had asked the STC to withdraw from Hadramawt and Mahra provinces.
"Negotiations are still ongoing, an offer to withdraw was presented, but the STC rejected it," the source added.
During its rapid offensive, the STC seized most of Hadramawt, the country's largest province, and pushed Islamist government-aligned forces, traditionally backed by Saudi Arabia, to neighbouring Marib.
Yemeni government security forces on Friday said 32 of its troops were killed and another 45 injured during the STC's offensive in Hadramawt.