By Yara Bayoumy and Mohammed Ghobari

SANAA (Reuters) - Yemen drifted deeper into political limbo on Friday after President Abd-Rabbu Mansour Hadi resigned in exasperation at a Houthi rebel takeover of the country, a move that appeared to catch the Iran-backed group off balance.

Hadi, a former general, blamed the Houthis' control of the capital Sanaa for impeding his attempt to steer Yemen toward stability after years of turmoil and tribal unrest, deepening poverty and U.S. drone strikes on Islamist militants.

His resignation on Thursday startled the Arabian Peninsula country of 25 million, where the Houthis emerged as the dominant faction by seizing Sanaa in September and dictating terms to a humiliated Hadi, whom they had held as a virtual prisoner at his home residence clashes with security guards this week.

The Houthis and pro-democracy activists staged rival rallies on Friday.

Thousands gathered in central Sanaa with placards calling for "Death to America, Death to Israel", a slogan that has become a trademark of the Shi'ite Muslim Houthi group.

"Hadi should have resigned a long time ago," Al Sheikh Moghadal Al Wazeer, an elderly Houthi supporter said. "He should have done more and he should have run the country with more strength."

Earlier in the day, a small group of pro-democracy activists chanted "we are the revolution" as they converged on Change Square, the focus of 2011 protests which forced long-ruling President Ali Abdullah Saleh to step down under a Gulf power transfer deal.

"We're here in rejection of the events that are happening. We came out to build a state and our demand is still to have a state," said activist Farida al-Yareemi. "We went out against Ali Abdullah Saleh and he had all the weapons."

Washington, which has relied on Hadi's cooperation to stage the drone strikes on the Yemeni branch of al Qaeda, said it was concerned by the departures of the president and Prime Minister Khaled Bahah, who also quit on Thursday.

Story continues

"The United States is troubled by reports of President Hadi and his cabinet’s resignation," State Department spokeswoman Jen Psaki said in a statement. "At this time, it is critical that all sides avoid violence."

The Yemeni parliament is scheduled to meet on Sunday to discuss Hadi's resignation and can accept or reject it. Under the constitution, parliamentary speaker Yahya al-Ra'i, who comes from Saleh's General People's Congress party, takes office for an interim period while new elections are organized.

NO OFFICIAL HOUTHI POSITION

Some Houthi officials have welcomed Hadi's resignation but the group said an official position had yet to be taken. It urged the army to uphold its responsibilities and called on Houthi fighters to be on alert.

Witness said Houthi fighters were seen surrounding the homes of a number of senior officials from Bahah's government, including the defense minister, in Sanaa.

A senior Yemeni official said the Houthis had proposed the creation an interim presidential council to run the majority Sunni Muslim country, but an alliance of parties rejected the idea. Officials said the Houthis were holding contacts with various political factions on what to do next.

Hadi, who led a United Nations-backed attempt to make political reforms and bury the autocracy and graft of the past, stood down shortly after Bahah offered his government's resignation, saying it did not want to be dragged into "an unconstructive political maze".

This was a reference to a standoff between the Houthi movement and Hadi, who had been held in his residence.

On Friday, Reuters witnesses said five all-terrain vehicles belonging to the special forces were parked outside Hadi's compound. Houthi fighters were not visible inside.

In the southern city of Aden, three soldiers and two armed men were killed in an attack by unidentified gunmen on armored vehicles in the early hours of Friday, local officials told Reuters. Three explosions were heard in the port city during the attack, which was followed by the clashes, said one of the officials, who declined to be identified.

The departure of Hadi, a southerner, has caused anger in Aden, where officials reacted by telling security officers to obey only orders issued in Aden, an implicit snub to institutions in the north, where Sanaa is.

Earlier in the week, Aden closed its docks briefly in protest against Houthi militia attacks on state institutions in Sanaa, calling them an "aggressive coup on the president personally and on the political process as a whole".

Hadi's decision marked an abrupt turnaround from Wednesday, when he said he was ready to accept Houthi demands for a bigger stake in constitutional and political arrangements.

(Additional reporting by Mostafa Hashem in Cairo, Mohammed Mokhashaf in Aden and Doina Chiacu in Washington; writing by Sami Aboudi, editing by William Maclean and David Stamp)