The attack came as southern separatists battled Yemeni government forces for control of the interim capital of President Abd-Rabbu Mansour Hadi's government in Aden.
Weekend fighting in the South Yemen capital city of Aden has left UAE-backed separatists in control of most of the government buildings. "Those inside are unofficially under house arrest at this point", a high-ranking officer with the Yemeni army told Agence France-Presse.
Aden residents claimed that the STC fighters overpowered Hadi's forces in central Aden's Crater and Tawahi districts.
The STC is backed by the UAE, a main component of the Saudi-led coalition.
Shabwa is controlled by Yemen's Saudi-backed government, which has been locked in a fight against the country's Shia Huthi rebels since 2014, and is also now battling separatists in the southern port city of Aden. "The coalition will take all the measures it deems necessary to restore stability and security in Aden", a statement said.
"We call for respect for the legitimate government of Yemen and avoidance of any steps that may further complicate the settlement of the ongoing crisis in the country", said a Foreign Ministry statement. The separatist forces did not enter the palace itself and were stopped by Saudi Arabian troops who have been guarding the palace for the past months.
United Nations envoy to Yemen Ismail Ould Cheikh Ahmed urged all parties to return to "calm and dialogue".
Violence reportedly erupted on Sunday after forces loyal to the STC seized the government's headquarters in the coastal city.
The council had asked Hadi to make changes in the government, accusing it of corruption and mismanagement, and gave him a week to do so - a deadline that expired on Sunday.
More than 9,200 people have been killed in Yemen since the Saudi-led coalition intervened.
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