Sanaa, Sep 11 (IANS/EFE): Yemeni President Abdo Rabu Mansur Hadi reached an agreement Thursday with the Shia Houthi rebel movement to form a new government and to end the insurgents' mass mobilisations which have led to violence, a presidential source said.

A Yemeni presidential official who participated in the mediation talks told EFE news agency that the accord stipulates that Hadi choose a new prime minister and the other ministers, giving the Shia movement the chance to join the cabinet.

Once the new head of government is appointed, the Houthi fighters have to start withdrawing from around Sanaa immediately.

The total withdrawal will be completed after the formation of the government.

The agreement also provides for the partial resumption of fuel subsidies. The Houthis' protests were triggered when the subsidies were cancelled.

Sanaa Governor Abdel Qader Helal, who led the negotiations on the government side, signed the agreement on behalf of the presidency.

The deal comes two days after at least seven protesters were killed and dozens were injured when police fired into a crowd in front of the seat of government in Sanaa.

The group's leader, Abdel Malek al-Houthi, threatened Tuesday to resort to "strategic options" if the authorities did not respond to their demands to restore fuel subsidies and dismiss the government.

The Houthis, who took up arms against the government in 2004 led by Hussein al-Houthi, the father of the current leader, have since 2010 controlled the northern province of Saada and have been attempting to expand into other areas.