(Adds Britain says seeking a security council resolution)
By Michelle Nichols
UNITED NATIONS, Feb 12 (Reuters) - The United Nations warned on Thursday that Yemen is "collapsing before our eyes", on the brink of civil war and prime for Al Qaeda militants to grow stronger in the country as talks on a political settlement continue.
Al Qaeda and other Sunni Muslim militants have stepped up attacks since rival Iranian-backed Shi'ite Muslim Houthi fighters from the north seized the capital in September and started expanding across the country.
The Houthis have sidelined the central government in Yemen, which borders oil giant Saudi Arabia. The country is also home to Al Qaeda in the Arabian Peninsula, one of the global network's most active arms that has carried out attacks abroad.
U.N. Secretary-General Ban Ki-moon and his special envoy to Yemen, Jamal Benomar, briefed the Security Council on Thursday.
"Yemen is collapsing before our eyes. We cannot stand by and watch," Ban told the 15-nation council. "We must do everything possible to help Yemen step back from the brink and get the political process back on track."
Benomar said negotiations on a political settlement had yielded "good progress", but were still delicate.
"Yemen is at a crossroad - either the country would descend into civil war and disintegration or the country would find a way to put the transition back on track," he said via video link from Sanaa.
"The current instability is creating conditions which are conducive to a reemergence of Al Qaeda in the Arabian Peninsula," he said.
Al Qaeda-affiliated fighters seized an army base in southern Yemen and held soldiers prisoner on Thursday. The United States, Britain and France have closed their embassies in Sanaa.
Benomar also warned that the local currency could collapse if a political settlement was not secured in the coming days.
Qatar's U.N. Ambassador Sheikha Alya Bint Ahmed Bin Saif Al Thani, speaking for the Gulf Cooperation Council, a six-nation bloc comprising energy-rich Gulf states, urged the Security Council to take action.
"It is a coup against the legitimate government in Yemen," she said. "We should bring pressure to bear on the Houthi to stop using force and to withdraw from all governmental institutions."
Britain's U.N. Ambassador Mark Lyall Grant said that Britain and Jordan were planning to draft a resolution on Yemen that he hoped could be adopted within days. He declined to elaborate on what the key elements of the resolution could be. (Additional reporting by Omar Fahmy in Cairo; Editing by Andrew Heavens, Bernard Orr)