Yemen's elite Republican Guards killed at least three people when they opened fire on anti-regime protesters in the southern city of Ibb on Friday, an opposition source and witnesses said.

The unit loyal to president Ali Abdullah Saleh began shooting as protesters surrounded a building where the troops had taken shelter after a clash earlier in the day, the opposition source said, adding dozens were wounded.

The overall protest death toll already tops 160.

Huge crowds had gathered in Sanaa and other Yemeni cities demanding that Mr Saleh leave after months of popular tumult, that has brought the Arab world's poorest country close to economic meltdown.

Armoured vehicles, troops and even military academy students with batons were deployed to contain a sea of protesters stretching seven kilometres down a main street in Sanaa.

"We are steadfast, you leader of the corrupt," anti-Saleh demonstrators chanted. "Peaceful, peaceful, no to civil war."

Gunfire erupted in Taiz, Yemen's third city, when security forces tried to bar protesters from going to a main street to perform prayers on what they call a "Friday of Decision".

Mr Saleh's supporters were calling it a "Friday of Unity".

In his sermon at Friday prayers, cleric Mohammed al-Fashiq urged the military to stop obeying Mr Saleh.

"To all the army leaders and all those who stand with the tyrant, fear God and join the revolution," he said.

But in a defiant speech to thousands of flag-waving supporters on Friday, Mr Saleh declared: "We will confront a challenge with a challenge."

Mr Saleh has clung to power despite defections from politicians, army officers and tribal leaders.

Mr Saleh, addressing his supporters, described protesters as "saboteurs".

He advised whoever wanted power to use the ballot box and "stop playing with fire".

Mr Saleh offered a "constructive dialogue" with opposition parties, but did not promise to sign a Gulf Arab plan to which they have already agreed.

Under the proposal Mr Saleh would step down in 30 days, rather than when his term ends in 2013.

Many of the youthful anti-Saleh protesters had also denounced the deal mediated by the six-nation Gulf Cooperation Council (GCC) because it would give the president immunity from prosecution.

The United States and its European allies urged all parties to sign and implement the agreement, but GCC member Qatar pulled out on Thursday citing "stalling... and lack of wisdom".

Shadi Hamid, director of the Brookings Doha Centre, said Qatar's move would make little difference.

"The GCC fell short. They were not able to persuade Saleh to give up power, so I think we're back at square one now," he told Reuters.

The prolonged conflict has disrupted oil output and crippled Yemen's already struggling economy.

International alarm has mounted over instability in Yemen, home to an ambitious wing of Al Qaeda, who has sworn vengeance for the killing by US forces of Osama bin Laden.

"The United States is deeply concerned by recent violence throughout Yemen, and joins European Union High Representative [Catherine] Ashton in strongly condemning these troubling actions," US state department spokesman Mark Toner said.

Calling on all parties to sign the GCC deal for Mr Saleh's departure, he said: "This transition must begin immediately."

France, which called for the agreement to be signed without delay, deplored "the excessive use of force against demonstrators" and urged Yemeni authorities to protect them.

- Reuters/AFP