Violence erupted in Taiz after thousands of protestors marched through the city heading towards the Freedom Square, where youth demonstrators were staging a sit-in, Al Jazeera reported.
The pan-Arab channel quoting provincial officials said that clashes broke out as the marchers passed the Governor`s headquarters, where troops barred their way baton charging them, bursting teargas and then opened fire, killing 15 people on the spot.
"At least 15 people were killed by live bullets and hundreds lay wounded as troops on nearby rooftops opened fire with live ammunition," opposition activists said.
There were also reports of regime loyalists in civilian clothes firing on protestors in Hudeida, west of Saana.
As violence continued to inflame the strategically located country on the Red sea, US media report said the American government had dropped its backing to the beleaguered President and was helping to negotiate his exile in another country with members of his family.
New York Times quoting the US and Yemeni officials said that Washington had almost finalised a deal to replace Saleh by his deputy Abd al-Rab Mansur al-Hadi.
The change of regime in Yemen -- the third in an Arab country after Egypt and Tunisia -- was also backed by Gulf monarchies and the country`s closest ally and banker Saudi Arabia.
The Gulf foreign minister who met in Saudi capital of Riyadh in a statement said the "Gulf Cooperation Council (GCC) have agreed to begin contact with the Yemeni government and opposition to overcome the current situation."
The GCC supported the moves to work out a negotiated agreement to overcome the status quo.
Their mediation offer comes a day after Yemen`s opposition told the beleaguered President to hand over power to his deputy, whom they would accept as an interim president till fresh elections are held.
The GCC also said in a significant statement that the "will and choices of the Yemeni people should be respected." The meeting was attended by Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the UAE - all GCC members.
The US, Arab and Yemeni officials were quoted by American media as saying that high-level negotiations were on to discuss a package for Saleh which would include a safe passage for him and his family to another country and transfer of power to Vice President al-Hadi till fresh elections are held within six months.
If Saleh agrees to the terms, he would be the third Arab head of state to demit office in the last few months in the face of countrywide riots and crackdown which have left more than 100 people dead.
The NYT reported that the Obama administration, which had long supported President Saleh even in the wake of wide spread protests, have quietly shifted position and decided he must be eased out of office.
Earlier, the US had maintained its support for Saleh and refrained from directly criticising in public even as his supporters fired on peaceful demonstrators, because he was considered a critical ally in fighting the Yemeni branch of al-Qaeda.
This position, the NYT said, has fuelled criticisms in the US as the country had rushed out to oust a repressive autocrat in Libya, but not in strategic allies like Yemen and Bahrain.
"That position began to shift last week," US officials were quoted by the NYT which said that Washington has now told its Arab allies that Saleh`s hold on office was untenable and he should leave.
The US, Saudi Arabia and Gulf countries have now come to realise the NYT said that there was race against the clock to resolve the political impasse in Yemen before the country implodes.