Yemeni pro-government forces advancing into the strategic province of Taez were battling rebels on the outskirts of its second largest town on Thursday, military sources said.
Eight rebels and two loyalists were killed in the fighting for Rahida, the pro-government sources said.
The town lies on the main road from government-held territory towards Taez, Yemen's third largest city, 40 kilometres (25 miles) further north, where loyalist troops have been besieged by the rebels for months.
Loyalist forces were backed by significant reinforcements from a Saudi-led coalition which intervened in support of President Abedrabbo Mansour Hadi in March.
Hadi returned from Saudi exile on Tuesday as the offensive against the Huthi Shiite rebels and their allies got under way.
The coalition carried out at least 10 air strikes against rebel positions in and around Rahida during the night, the military sources said.
Breaking the siege of Taez is seen as crucial for the recapture of other central provinces and opening the way to the rebel-held capital Sanaa further north.
It is also important for securing the south, where loyalists have retaken five provinces from the rebels since July, including second city Aden, where Hadi has set up base.
In their advance out of the south, pro-government forces have also been battling the rebels in Marib province east of the capital.
Hundreds of reinforcements were deployed to the province on Thursday, equipped with dozens of military vehicles newly arrived from neighbouring Saudi Arabia, military sources said.
Loyalists control Marib city, 140 kilometres (90 miles) from Sanaa, but they have so far failed to secure the rest of the province, which is the source of much of Yemen's oil output.
The latest reinforcements came as Saudi Arabia's regional rival Iran called on all sides in the conflict to join UN-sponsored peace talks in Geneva later this month.
Tehran accused Riyadh of deepening the conflict with its military intervention against the rebels.
According to United Nations, more than 5,700 people have been killed since the intervention began in March, nearly half of them civilians.