Yemen’s capital, Sana’a, appeared to have fallen to Shia rebels on Tuesday, after militants overran the presidential palace and secured control of most other state institutions after two days of deadly clashes.

The fate of the country’s elected president, Abed Mansour Hadi, remained unclear, as the rebels, known as Houthis, rampaged through the city. Hadi was believed to be barricaded in his home in another part of Sana’a, which was being shelled throughout the evening.

Huge explosions were heard inside the presidential palace, which sources said were rockets used when presidential guards briefly resisted the Houthi takeover.

The continued assault had earlier been described as a “coup” by Yemen’s information minister and other senior officials. The apparent fall of the palace marks a new and dangerous phase in Yemen’s post-revolution history, with widespread implications for the combustible nation, as well as neighbouring states.

UN secretary general Ban Ki-moon condemned the clashes, and the UN security council met to discuss the crisis. “The secretary general is gravely concerned about the deteriorating situation in Yemen,” the UN press office said. “He deplores the heavy fighting between Ansarallah [Houthi] armed groups and Yemeni presidential guards throughout Sana’a.”

Britain’s UN ambassador, Mark Lyall Grant, said:“Clearly the situation has deteriorated very significantly over the last 48 hours and that’s why the security council needs to meet and decide its response.” He expressed hope that the council will issue a statement expressing “deep concern about the deteriorating security situation”.

The influence of the Houthis has expanded drastically since they stormed into Sana’a last September, rattling a nascent new order that was trying to find its feet three years after a revolt ousted veteran leader Ali Abdullah Saleh.

In the five months since, Hadi had struggled to impose his government’s will. Besieged and unable to control key sections of Yemen’s military, he now seems to have few options and officials in Sana’a were on Tuesday speculating that military rule could soon be imposed across the country.

The Houthi push was a death knell to a 2011 political transition backed by the Gulf states, which had removed Saleh from power after 40 years.

A key selling point of the change had been to introduce broad social reforms that would transform the poorest state in the Arab world. Instead, Yemen remained beset by poverty and political torpor.

Until recent days, the Houthis had been content to use their newfound status to push for greater influence within the government, a stance that had clipped the wings of the embattled president.

Hadi’s most ambitious move – a draft constitution to establish six federal regions in the country – was the impetus for the apparent Houthi grab for outright control. Houthis instead want two regions, fearing that any more than that would dilute their newfound influence.

Zakaria al-Shami, the Houthi deputy commander in chief of Yemen’s armed forces, who was appointed by Hadi last month, blamed the president for the chaos in the capital. “Twenty-four hours of negotiations with President Hadi were fruitless as he refuses to implement the peace and partnership deal which stresses that Ansarullah [Houthis] are involved in all the decision making in Yemen,” said Shami. “Negotiations are not over but international powers are forcing the president to fight and shed more Yemeni blood.”

Facebook Twitter Pinterest Houthi fighters stand on a street near the presidential palace in Sana’a. Photograph: STR/EPA

In recent months, the Houthi expansion had led to sporadic sectarian violence in Sunni dominated provinces in the south of the country. Southern Yemen remained tense, but quiet on Tuesday, security officials said.

The militant group controls the strategic border areas with Saudi Arabia, which are close to Saudi minority Shia populations. The rising influence of the Houthis has deeply unsettled Riyadh, which fears that Yemen’s insurrection may resonate with disaffected Shias within its own borders.

Iran has expressed support for the Houthi revolt, which some Iranian military leaders have claimed is an extension of clashes elsewhere in the Middle East. However, Iranian backing is not believed to have extended to military support, as it has in Syria, Iraq and Lebanon.

In a speech on Tuesday night the spiritual leader of the Houthis, Abdul Maliki al-Houthi, described Hadi as “an umbrella for corrupt officials”.