Riyadh has demanded the rebels hand over the soldiers to prove they are serious about ending fighting with Saudi Arabia that has raged since insurgents seized some Saudi territory in November, saying Riyadh let Yemen use Saudi land to attack them.

The rebels, whose main battle is with Yemen's central government, agreed Thursday to a truce with Sanaa, with whom they have battled since 2004. Last month, rebels had also offered Saudi Arabia a truce and said they had quit the kingdom.

"The handover operations of prisoners of war after the end of the Saudi confrontations against the Houthi infiltrators are part of the cease-fire agreement between the Yemeni government and the Houthi rebels," Asharq al-Awsat newspaper quoted an unidentified Yemeni security official as saying.

"The handover operations are expected to be completed in less than a week," he added. Asharq al-Awsat is owned by a nephew of Saudi Arabia's King Abdullah.

Officials at the Saudi defence ministry could not be reached for comment.

Saudi Arabia and Western powers fear Yemen may become a failed state and al Qaeda could exploit the chaos to use it as a base for attacks in the region and beyond.

Yemen, in addition to its fight against the northern rebels, is also battling southern separatist sentiment and a resurgent al Qaeda that has made the country its regional base. The Nigerian accused of trying to blow up a U.S. plane in December had links to Yemen.

Riyadh las t month declared victory over the Yemeni rebels following the rebel truce offer, and said rebels needed to show they were serious about ending the fighting. Rebels said some Saudi air strikes had continued.

Saudi Prince Khaled bin Sultan, Assistant Minister of Defence, Saturday gave the rebels 48 hours to hand over five captured Saudis.

Saudi Arabia has also set as a truce condition that rebels withdraw from border regions to allow the Yemeni army to secure the area. Prince Khaled said the Yemeni army should take up positions along the Saudi-Yemeni borders "to prevent the entry by infiltrating groups.

The rebels, from the Zaidi sect of Shi'ite Islam, have long complained of social, religious and economic discrimination in Yemen.

(Writing by Souhail Karam; Editing by Janet Lawrence)