Yemen vowed to fight "terrorism" regardless of the sacrifices as Al-Qaeda claimed it was behind a bombing on Monday that saw a soldier blow himself up in the middle of an army battalion, killing 96 troops.
US President Barack Obama said the United States was very worried about the threat posed by an Al-Qaeda affiliate and pledged to work with the Yemeni government to crack down on Al-Qaeda in the Arabian Peninsula (AQAP), blamed for several Yemeni-based attempts to blow up US airliners and cargo planes.
"We are very concerned about Al-Qaeda and extremist activity in Yemen," Obama told reporters at a NATO summit devoted to ensuring that Al-Qaeda is not allowed to regroup in another one-time terror haven, Afghanistan.
UN Secretary General Ban Ki-moon said those behind the attack must be brought to justice.
The European Union also condemned a "brutal and terrible" bombing.
"The war on terror will continue until it is completely destroyed regardless of the sacrifices," Yemen's president, Abdrabuh Mansur Hadi, said in a statement carried by state news agency Saba.
Hours earlier, a soldier detonated explosives under his uniform in the middle of a battalion, killing 96 troops and wounding about 300, in a massive blast witnesses said echoed loudly across Sanaa, causing panic among residents.
Yemen-based AQAP claimed responsibility for the attack which it said targeted "the defence minister and other leaders of the US war on our people in Abyan" province in the south.
"Even if the defence minister (Mohammed Nasser Ahmed) and his aides escaped this operation, we will not tire... we are in a war to defend our blood which is violated in Abyan, and war only breeds war," it said in a statement posted on jihadist Internet forums.
Police Colonel Abdul Hamid Bajjash, the officer in charge of security at the blast site, said Yemen's defence minister was present at the time of the explosion but escaped unharmed.
He said the bomber detonated his explosives as soldiers from the government's central security forces, commanded by a nephew of former president Ali Abdullah Saleh, rehearsed for an army parade to mark the 22nd anniversary of the unification of north and south Yemen.
Medics, speaking on condition of anonymity, said the casualties were being treated in seven hospitals across the city. All the dead and injured were soldiers, they added.
Witnesses said human remains were scattered across the site of the blast at Sanaa's Sabeen Square, where the government often stages large military parades.
An AFP correspondent said dozens of ambulances rushed to evacuate the dead and wounded, as security forces cordoned off the area.
Monday's attack is Sanaa's most deadly since Hadi took power in February with a pledge to fight Al-Qaeda's growing presence in the country.
Yemen's army launched an offensive on May 12 to retake Al-Qaeda towns and cities held by extremists across Abyan.
Western diplomats in Sanaa say that US experts have been advising the Yemeni army in combat.
"We remind the collaborators leading the army and security forces in Yemen that the US war in Abyan in which American and Saudi planes kill our women and children will not take place while you are safe in Sanaa. We will take out revenge," AQAP said.
"The flames of war will reach you wherever you are and what happened (Monday) is only the beginning of the road in jihad," it added.
The army's offensive in south Yemen came days after the White House announced that a plot by AQAP to blow up a US airliner had been foiled.
Yemen military and tribal sources said Monday that 11 Al-Qaeda fighters and three Yemeni soldiers were killed in the latest fighting around the southern city of Jaar.
The clashes during the night took place mainly at the city's western entrance, a military source said, adding 17 soldiers were wounded in the clashes.
In a separate incident Monday, Al-Qaeda militants attacked a Yemeni military base in Wadi Hassan, east of Zinjibar, killing seven soldiers and wounding 23 others, military officials and medics said, adding fierce fighting also erupted northeast of the city.
Since the offensive began, 234 people have been killed, according to a tally compiled by AFP, including 158 Al-Qaeda fighters, 41 military personnel, 18 local militiamen and 17 civilians.
Residents and tribes in the area surrounding Jaar have formed armed militias, Popular Resistance Committees, to back the army, similar to those formed in other Abyan towns -- Loder and Mudia.
On Monday, Al-Qaeda militants claimed they raked with gunfire a convoy carrying four US military advisers in Hudaida, but American officials said they had no such personnel in the west Yemen port city.
The jihadists said in a statement that gunmen had opened fire on Sunday on two cars carrying four American military advisers who were in the Red Sea city on a training mission with the Yemeni Coast Guard.
The militants "opened fire on them as they left their hotel on their way to work," the statement said, adding that the attackers were able to flee despite efforts by Yemeni security forces to cordon off the city.
The US embassy in Sanaa however denied the presence of American military advisers in Hudaida.
"Reports of US military trainers in Hudaida are false," an embassy email said.
Obama said there was no doubt that Yemen's poverty and instability attracted extremists, and added that Washington, which has used drones to take out leaders of AQAP, had a robust counter-terror operation there.