(Updates with interior ministry denying death)

SANAA, April 2 (Reuters) - One of five people wounded in clashes between protesters and Yemen government forces on Wednesday has died, said residents in southern towns where hundreds of youths have taken to the streets to demand army jobs.

The official Saba news agency said a security source denied the protester's death and said the "saboteurs" involved in the rampage would face legal action.

"Those saboteurs ... assaulted innocent employees and looted shops and private property," Saba quoted the source as saying.

Another security source told Reuters earlier that government forces clashed with the protesters when "they started to destroy public and private property", but did not give details.

Poverty and unemployment are fuelling discontent in southern Yemen, one of the world's poorest countries outside Africa.

Residents said the man died from wounds sustained during the violence when gun shots were heard several times. It was not immediately clear if his injuries were caused by bullets.

On Tuesday, police arrested dozens of protesters after youths attacked buildings and businesses. At least five others were wounded in the first two days of the protests which started on Sunday.

Residents said hundreds of youths, many under 20, were taking part in the protests and a newspaper said about 32 were detained including three opposition politicians.

State jobs or joining the army are among the main sources of employment and more than half the workforce is in the agricultural sector. One diplomat estimated unemployment at 17 percent.

Travellers said the army blocked a main road between Aden and Sanaa that passes through the towns hit by the violence.

Armoured vehicles have been deployed to restore order in several towns in the oil-producing south of the Arab country. Al Jazeera television has shown youths marching and blocking traffic by setting fire to tyres.

The south is home to only a fifth of Yemen's 22 million people but it generates much of its revenue. Up to 80 percent of oil production comes from the area which also has fisheries and Aden's port and refinery.

In recent months, protests spearheaded by former soldiers demanding pension rights have met a tough response from the security forces, and several people have been killed or wounded.

Last year Yemen banned protests and demonstrations organised without the authorisation of the government and said it would take legal action against those who ignored the ban.

Yemen's per capita GDP was estimated at $723 in 2006, according to a U.S. State Department report. (Reporting by Mohamed Sudam and Mohamed Mukhashef; Writing by Inal Ersan; Editing by Robert Woodward)

AlertNet news is provided by