* Government in exiled rejects peace talks set for this week
* Saudi-led forces take part in central Yemen battles
* Apparent U.S. drone strike kills 5 al Qaeda fighters (adds Saudi-led coalition joining ground battles)
By Mohammed Ghobari
SANAA, Sept 13 (Reuters) - Yemen’s exiled government pulled out of U.N.-mediated peace talks with its Houthi adversaries on Sunday as troops from the Saudi-led coalition that is seeking to restore it took part in ground fighting in a central province for the first time.
The moves push back the prospects of a peaceful resolution to the conflict that has developed into a proxy war reflecting Saudi and Iranian rivalry for regional influence.
Loyalists of President Abd-Rabbu Mansour Hadi have been battling the Iran-allied Houthis across Yemen since March, when the group forced him and his administration to flee to Saudi Arabia.
A mainly Gulf Arab alliance intervened in the conflict, mounting hundreds of air strikes and backing ground forces they hope will seize the capital Sanaa, which the Houthis seized in September 2014.
The exiled government’s official news agency Saba said it would not join the U.N. mediated peace talks until the Houthis accepted an April U.N. Security Council resolution calling on them to recognise Hadi and quit Yemen’s main cities.
“The gathering affirmed it would not take part in any meeting until the (Houthi) coup militia recognise international resolution 2216 and accepts to implement it unconditionally,” a statement carried by Saba said.
It said the meeting included President Hadi, his vice president and advisors.
The conflict now appears set to intensify as thousands of coalition troops have been deployed to the central desert province of Marib.
The force includes troops from the United Arab Emirates, Saudi Arabia and Qatar, and there are unconfirmed reports that Bahraini and Egyptian troops are present.
A local Yemeni official in Marib said foreign units had for the first time joined ground fighting alongside pro-Hadi fighters in the area on Sunday, sending around 10 tanks and armoured vehicles to the frontline.
The Saudi-led alliance has stepped up air strikes on the capital and other Houthi-held areas since a Houthi missile killed more than 60 Gulf Arab troops stationed in Marib on Sept. 4.
The raids killed at least 16 civilians nationwide on Saturday, medics said, in the latest mass casualties which have led rights groups to say that the campaign may be committing war crimes.
Peace talks in June failed to end the fighting, which has brought the country to the brink of famine, killed more than 4,500 people and led to a security vacuum that has strengthened Al Qaeda’s Yemen branch.
On Saturday night, a suspected U.S. drone strike killed at least five al Qaeda fighters gathered inside a military base outside the eastern coastal city of Mukalla, local security officials said. The group has partly controlled Mukalla since the army withdrew from the area in April.
A mid-level commander in the organisation, Othman al-Sanaani, was killed in the strike, the sources said.
Al Qaeda in the Arabian Peninsula has carried out attacks against the Yemeni state for years of bomb, plotted to blow up U.S.-bound airliners and claimed responsibility for a Januray attack in Paris on a French magazine that killed 12 people.
Writing by Noah Browning; Editing by Angus MacSwan