Saudi Arabia will grant petroleum products worth $422 million to Yemen's internationally recognised government for power stations and to support public services as the country grapples with a fuel shortage.
Crown Prince Mohammed bin Salman informed Yemeni President Abdrabu Mansur Hadi of the grant under the Saudi Development and Reconstruction Programme in a telephone call, state news agency SPA reported on Tuesday.
Saudi Arabia leads a military coalition that intervened in Yemen in 2015 after a major military offensive by the Iran-aligned Houthis who ousted Mr Hadi's government from the capital Sanaa and now hold most of northern Yemen. The government is based in the south.
Fuel shortages knocked out water pumps, generators in hospitals and disrupted aid supplies in Yemen, where 80 per cent of the population need help.
Last week Mr Hadi's government said it had approved the entry of some fuel ships to Yemen's Red Sea port of Hodeidah, which is controlled by Houthi militias.
The move came after the group, which controls most large urban centres, said it would agree to a Saudi Arabian ceasefire only if certain conditions were first met.
Houthi spokesman Mohammed Ali Al Houthi said he would accept an honourable peace with Saudi Arabia with the caveat of ending the so-called blockade and coalition military operations in Yemen.