It was not immediately clear whether the police were using live ammunition or rubber bullets.
The security officials say two others demonstrators were also wounded in the eastern town of Mukalla, but no details were immediately available.
The protest in Mukalla was one of several anti-government demonstrations across Yemen Thursday. Tens of thousands joined in the protests, chanting "down, down with the regime."
The marches were among the largest yet against President Ali Abdullah Saleh, a key U.S. ally in the fight against al Qaeda. Earlier this week, the president promised not to extend his term beyond 2013 in an attempt to defuse calls for his ouster.
After initially calling for dialogue with the demonstraters, a statement from Yemen's ruling party said: "We call for stopping media propagandas and urge all political parties to work together to make the dialogue a success and arrange for the upcoming elections well, the committee added. Furthermore, we urge an end to protests that ignite dissent and to avoid dragging the country into conflict or sedition, as we urge to better use rights including freedom of expression."