The Yemeni opposition accused embattled President Ali Abdullah Saleh of having allowed Zinjibar, capital of Abyan province, to fall to the gunmen to raise fears concerning Al-Qaeda and boost his flagging international support.
The suspected Al-Qaeda fighters "were able to gain control of the city of Zinjibar ... and took over all government facilities," except for the headquarters of the 25th mechanised brigade, which is besieged by militants, a security official said.
Residents reported that there had been heavy fighting in the city on Friday and Saturday, and that gunmen had freed dozens of prisoners from the main prison in Zinjibar.
One witness said on condition of anonymity that the gunmen executed soldiers who surrendered, and that residents were not able to bury them.
Dozens of families fled towards Aden, the main city in the south, among them Nazir Ahmed Said, who told AFP he left because "the city is under the control of gunmen who say they are from Al-Qaeda."
"Saturday morning, the gunmen called on residents by loudspeaker to go out and reopen their shops, but few answered the call because they are afraid," he added.
The security official estimated that more than 200 militants had attacked the city.
"The lack of concern from the authorities is unfortunate," he said, adding that "the leadership in Abyan province left the area before it exploded."
He was among the last security officials to quit the city, he said.
Five soldiers and a civilian were killed on Friday, two other security officials said, while residents of Zinjibar said they found the bodies of 10 soldiers, bringing the toll from the fighting there to at least 16.
One of the officials said that another two soldiers were killed Friday in clashes with suspected Al-Qaeda fighters in the town of Loder, also in Abyan province.
In a statement, the Common Forum parliamentary opposition coalition accused Saleh of having "delivered Zinjibar to armed groups that he has formed and armed, to continue to utilise the spectre of Al-Qaeda to frighten regional and international parties."
It denounced "the criminal plotting of Ali Abdullah Saleh" and reiterated its call for "the immediate departure" of the president.
Saleh has since January faced protests calling for him to quit office after 33 years in power.
On May 22, he refused to ink a Gulf Cooperation Council-sponsored accord that would have seen him cede power within 30 days in exchange for immunity from prosecution.
Saleh had the previous day warned that Al-Qaeda would benefit from the fall of his regime.
"The departure of the regime ... means the departure of Yemeni unity and the republic," he said.
"If the regime goes, Al-Qaeda will flourish in (the provinces of) Hadramawt and Shabwa and Abyan, and the situation will be worse," he said, addressing "our friends in the United States and the European Union."
Saleh has been a key US ally in the fight against Al-Qaeda's Yemen-based franchise, Al-Qaeda in the Arabian Peninsula, which has claimed attacks against US and other Western interests.