Thousands of Yemenis began a 50 km (31 mile) march on Saturday to demand an end to a conflict which has forced nearly 100,000 people to flee southern Yemen, residents said, a day after seven militants were killed in fighting there with the army.

Up to 20,000 activists set out from the port city of Aden towards Zinjibar, the capital of Abyan province where the army has been battling Islamist militants suspected of having links with al Qaeda, residents said.

The marchers called on both sides to lay down their arms and demanded the government open the Aden-Zinjibar coastal highway, a key trade route which has remained closed during the conflict.

The militants and the Yemen-based regional wing of al Qaeda -- seen by the United States as the group's most dangerous branch -- have thrived during the instability caused by nearly a year of protests against the 33-year rule of outgoing President Ali Abdullah Saleh.

Top oil exporter Saudi Arabia, which shares U.S. concerns over more instability in a country sitting next to oil shipping routes, has backed a Gulf Arab plan to ease Saleh out of power.

Since Saleh handed over the reins to his deputy under the Gulf peace accord, a new government headed by an opposition leader has been formed. A presidential election is scheduled for February.

But the fighting against the Islamist militants in the south has continued, forcing about 97,000 people to flee. More than 300,000 others have been displaced by a conflict in the north and nearly 200,000 have sought refuge from Somalia, according to U.N. estimates.

FUEL LIFELINE

Separately, Yemen's oil minister said a grant of diesel from neighbouring Saudi Arabia would be enough to cover the country's needs for two months, easing some fears about the strife-hit economy.

Industry sources said on Thursday Saudi Arabia's state oil company Aramco was seeking to buy fuel in order to donate about 500,000 tonnes of products to Yemen in January.

Yemen's diesel consumption is 260,000 tonnes monthly, worth $280 million ... The Saudi grant will cover Yemen's diesel needs for two months, Oil Minister Hisham Sharaf told Reuters.

It would be the second time in six months Saudi Arabia has thrown a fuel lifeline to its impoverished neighbour, which Saudi officials fear could slip into civil war after a year of protests against outgoing President Saleh.

Sharaf also told Reuters production at the Masila oilfield - now under Yemeni administration after Canada's Nexen had one of its production contracts expire without renewal - was 70,000 barrels per day.

Yemen relied on 3 million barrels of Saudi-donated crude oil to run its refinery in June, when its main pipeline was shut after blasts, causing a fuel shortage.

The pipeline, which was repaired during the summer, was shut again after attacks in October. The lack of crude flow in the pipeline has also forced the Aden refinery, where production mainly meets domestic fuel demand, to halt operations.

(Reporting by Mohammed Mukhashaf; Additional reporting by Mohammed Ghobari and Khaled Abdullah in Sanaa; Writing by Firouz Sedarat and Joseph Logan; Editing by Andrew Heavens)