The violence has hampered attempts by regional and international mediators to clinch a power transfer deal between political rivals, with the opposition saying it will not negotiate "while blood is flowing in Sanaa."
Fighting between dissident military troops and those loyal to President Ali Abdullah Saleh broke out at dawn after a brief lull overnight and raged into the morning, leaving seven people dead, medics and witnesses said.
Sanaa was quiet later on Tuesday as the fighting receded, residents said.
Republican Guard troops, commanded by Saleh's son, Ahmed, shelled posts held by Ahmar's troops around Change Square, epicentre of the anti-regime protests that have shaken Yemen for months, witnesses said.
Change Square was targeted by mortar rounds and anti-aircraft fire, with one witness describing it as the "heaviest shelling" yet and saying it "lit the sky over the square."
A shell also hit Al-Iman University near the square killing one and wounding three others, said university spokesman Ayed al-Zindani.
Protest organisers said the numbers of demonstrators camped in an area stretching about three kilometres (two miles) from Change Square to Al-Zubair Road had swelled to nearly 150,000. Their figures could not immediately be verified.
The latest violence was sparked on Sunday when demonstrators, vowing to escalate their protests, headed out from Change Square, where they have camped since February. They marched southwards along Al-Zubair Road towards Kentaky crossroad in central Sanaa.
They were met by security forces and armed civilians who opened fire on them, leaving 26 dead, medics said.
Dissident troops intervened in defence of the protesters, who managed to drive out Saleh's loyalists and security forces before setting up their own tents along the road.
On Monday, 27 people were killed in similar clashes, medics and protest organisers said.
More than 600 people have been wounded by gunfire in Sanaa since Sunday, with 47 in critical condition, organisers and medics say.
Five civilians were also killed in the city of Taez south of Sanaa while six others were wounded in random shelling and gunfire by Saleh's forces, according to medics and residents there.
European Union foreign policy chief Catherine Ashton called on Tuesday for a halt to violence in Yemen and urged the president to accept a power transfer.
The US embassy said Monday that Washington hoped for a peaceful transition of power and hoped a Gulf Cooperation Council (GCC) initiative would be signed within a week to transfer power from Saleh to his deputy.
The bloodletting coincides with the arrival in Sanaa of UN envoy to Yemen Jamal Benomar and GCC chief Abdulatif al-Zayani for what a diplomat said was the signing of a UN roadmap for the transfer of power.
The opposition has declined to meet any of the officials. "The opposition cannot receive them while blood is flowing in Sanaa," said a leading activist.
The deputy leader of the ruling General People's Congress, Sultan al-Barakani accused the opposition on Tuesday of having "hindered" mediation efforts and said protesters had to return to their "previous positions" in Change Square.
On August 17, all sectors of Yemen's opposition joined to elect a 143-member National Council which set a plan for escalating protests to pressure Saleh to resign as a months-long political stalemate has left hundreds killed nationwide.
The political turmoil has also left one in every three Yemenis going hungry everyday and has pushed the economy to the verge of collapse and the government towards total paralysis, Oxfam said in a statement Monday.
Saleh, who has ruled Yemen since 1978, has been recovering in Saudi Arabia after a June 3 explosion at his presidential compound, but has so far refused to transfer power to his deputy or to sign the so-called Gulf Initiative.
The GCC plan, proposed last spring, calls on Saleh to step down as president and hand over all constitutional authorities to his deputy. In return, Saleh and his family would be granted immunity from prosecution.
However, young protesters reject the plan and call for the immediate ouster of Saleh and all members of his regime and for bringing him to justice.
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