Yemen’s U.S.-backed president quit Thursday under pressure from rebels holding him captive in his home, severely complicating American efforts to combat al-Qaida’s powerful local franchise and raising fears that the Arab world’s poorest country will fracture into mini-states.

Presidential officials said Abed Rabbo Mansour Hadi submitted his resignation to parliament rather than make further concessions to Shiite rebels, known as Houthis, who control the capital and are widely believed to be backed by Iran.

The prime minister and his cabinet also stepped down, making a thinly veiled reference to the Houthis’ push at gunpoint for a greater share of power. Houthis deployed their fighters around parliament, which is due to discuss the situation on Sunday.

Yemeni law dictates that the parliament speaker — Yahia al-Rai, a close ally of former autocratic ruler Ali Abdullah Saleh — will now assume the presidency. Saleh still wields considerable power and is widely believed to be allied with the Houthis.

There were conflicting reports suggesting that authorities in Aden, the capital of southern region of Yemen, would no longer submit to the central government’s authority. Even before the Houthis’ recent ascendance, a powerful movement in southern Yemen was demanding autonomy or a return to the full independence the region enjoyed before 1990. Southerners outrightly reject rule by the Houthis, whose power base is in the north. The Houthis are Zaydis, a Shiite minority that makes up about a third of Yemen’s population.

Concerns were also mounting about an economic collapse. Two-thirds of Yemen’s population are already in need of humanitarian aid, according to reported U.N. figures. Iran’s regional rival Saudi Arabia, which has long beenYemen’s economic lifeline, cut most of its financial aid to Yemen after the Houthis seized the capital in September. The Houthis deny receiving any Iranian support.

The Houthis’ recent encroachments on Sunni areas have also fanned fears of a sectarian conflict that could fuel support for al-Qaida, a Sunni movement that has links to some of the country’s tribes and is at war with both the Shiites and Hadi’s forces. U.S. officials say the developments are already undermining military and intelligence operations against al-Qaida’s Yemen-based affiliate, which made its reach felt in this month’s deadly Paris attacks.

Hadi’s resignation comes four months after President Barack Obama cited Yemen as a terrorism success story in a September speech outlining his strategy against the Islamic State group in Iraq and Syria, which involves targeted U.S. strikes on militants with the cooperation of a friendly ground force. Obama called it an approach “that we have successfully pursued in Yemen and Somalia for years.”

In Washington on Thursday, State Department spokeswoman Jen Psaki said the U.S. was still trying to sort out what was happening on the ground and had made no decisions yet regarding embassy staffing.

The resignations mark the collapse of an internationally backed transition that compelled Saleh, who ruled for three decades, to resign in 2012 following months of Arab Spring protests.

Hadi’s rule was deeply undermined by Saleh loyalists who retained posts in state institutions and the security apparatus. Last year the U.N. Security Council imposed targeted sanctions on Saleh and two top Houthi leaders, accusing them of obstructing the political transition.

Despite widespread fears, some observers said Thursday’s resignation of the elected president could encourage Yemenis to take to the streets just as they did in 2011 in against Saleh.

“The coming hours will be decisive for Yemen for decades to come. Either they will usher in a new path, new openings, or we say our death prayers,” said Yemeni writer Farea Al-Muslimi.

Shortly after Hadi’s resignation, the Supreme Security Committee, the top security body in Aden, the capital of the south, issued orders to all military bases, security bodies and popular committees composed of armed civilians to be on a state of alert and take orders only from Aden central command.

It was not immediately clear how much mandate the security authorities have over the southern region, and analysts predicted that internal conflict among southern secessionist leaders would probably delay action toward a split with the north.

The greater threat, they said, is fragmentation of other regions.

“We are not talking here about split of north and south, but the fracture of the state to small pieces where each tribal region disintegrates,” said Al-Muslimi.

Hadi’s resignation came despite efforts by U.N. envoy Jamal Benomar to implement a deal reached Wednesday to resolve the crisis.

“We reached a deadlock,” Hadi said, according to a copy of his letter of resignation obtained by The Associated Press. “We found out that we are unable to achieve the goal, for which we bear a lot of pain and disappointment.”

Presidential adviser Sultan al-Atawani told AP that the Houthis refused to withdraw from the presidential palace, the republican palace where the prime minister lives or from the president’s house. They also refused to release a top aide to Hadi whose abduction earlier this week set the violence in motion.

Military officials close to the president said the Houthis also pressured Hadi to deliver a televised speech to calm the streets. They said the Houthis also demanded appointments in his own office, the Defense Ministry and provincial capitals. The officials spoke on condition of anonymity because they were not authorized to speak to the media.

Shortly before Hadi’s resignation, Prime Minister Khaled Bahah submitted his own resignation, saying he feared “being dragged into an abyss of unconstructive policies based on no law.”

Three ministers of his cabinet told AP that they were subjected to heavy pressures from Houthi gunmen who visited them in their homes with list of names of people they want to appoint in their ministries. They spoke on condition of anonymity because of the sensitivity of the information.