The standoff between Brigadier General Ahmed Saleh, son of ousted former president Ali Abdullah Saleh, and President Abd-Rabbu Mansour Hadi could delay an overhaul of armed forces that split last year during a mass uprising, worsening disorder.
Restoring security in Yemen is a priority for the United States and Gulf allies because al Qaeda militants are entrenched in parts of the country, posing a potential threat to top oil exporter Saudi Arabia next door and nearby shipping lanes.
“Brigadier General Ahmed Ali Abdullah Saleh rejected the president's instructions to hand over Scud missile formations in the possession of the Republican Guards to the Defence Ministry,” a presidential palace source told Reuters.
“This has caused a crisis between the two sides.”
A second presidential palace source confirmed this information and added: “The president was so angry at the rejection of his orders and threatened to revoke the immunity given to the former president and expose corruption worth billions of rials in the armed forces.”
The Republican Guards, the best equipped wing of the Yemeni armed forces, have been seen as crucial to containing al Qaeda.
Hadi, elected in February for a two-year interim period with a mandate to restructure the military, has been gradually trying to loosen the Saleh family's grip on the armed forces in a country where the former president's legacy still looms large.
U.S. INFORMED OF STAND-OFF
Revamping the armed forces, which entails removing powerful relatives of Saleh from key positions, is a pivotal part of a U.S.-backed power transfer deal signed in Saudi Arabia that brought Hadi to power and aims to hold the country together.
The sources said Hadi had discussed the Scud dispute with senior U.S. officials, including Assistant Secretary of State Andrew Shapiro and General James Mattis, chief of the U.S. Central Command, at a meeting in the capital Sanaa on Monday.
Officials at Ahmed Saleh's office were not available for comment. But his father's press secretary said the threats made by Hadi violate the terms of the power transfer deal signed in Saudi Arabia last year which granted the ex-president immunity from prosecution for any crimes committed during his rule.
“The comments attributed to President Hadi are serious and contradict the political settlement accord which was prepared by Gulf Arab states and backed by U.N. Security Council members and the European Union,” Ahmed al-Soufi said in a statement.
A leader in Saleh's General People's Congress party said that it inquired about the comments attributed to Hadi and were told that they were inaccurate.
The pro-Saleh al-Ayyam newspaper quoted Hadi as saying that what he meant was that no immunity would be granted to anyone who carries out any sabotage action in Yemen.
“I did not mean any person in particular and certainly not the immunity granted by parliament in line with the political settlement,” the Arabic language daily quoted Hadi as saying.
In April, Hadi removed about 20 top commanders, including a half brother of Saleh and other relatives.
In August, he began chipping away at General Ahmed's power base by transferring units from the Republican Guards to a new force under his command or under different regional commands. 
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