Abu Ali al-Kandahari is one of two top al Qaeda leaders in Yemen, according to security reports published in the Yemeni press.
The other, Mohammed Hamdi al-Ahdal, was arrested by security forces that surrounded his hideout west of the capital, San'a, the Interior Ministry said Tuesday. Four men, believed to be al-Ahdal's guards, were also arrested.
Al-Kandahari is believed to be hiding in the northern provinces of Marib and Jawf, and security forces are closing in on him, said officials, speaking on customary condition of anonymity.
He is reported to have replaced Qaed Salim Sinan al-Harethi after he was killed by a missile fired from a U.S. drone last year. Al-Harethi was thought to have been Osama bin Laden's top deputy in Yemen.
Saudi-born al-Ahdal, 32, has been described as the main coordinator of al Qaeda activities in Yemen, supervising the terror group's finances, weapons smuggling and operational planning and was well-connected to other extremists in Persian Gulf countries, the official said.
Yemeni security officials believe he was one of the masterminds of the 2000 bombing of the USS Cole in Aden harbor, which killed 17 U.S. sailors, and the 2002 bombing of the French oil tanker Limburg off the Yemeni coast.
In each of those attacks, an explosive-laden boat was piloted up to the larger ship and detonated. The Limburg attack killed a Bulgarian crewmember and spilled 90,000 barrels of oil into the Gulf of Aden.
Al-Harethi, who was in his mid-40s, was believed to have coordinated the attack on the Cole. He first met bin Laden in the 1980s during the war against Soviet occupation in Afghanistan, and the two met again in Sudan, where bin Laden lived for much of the 1990s.
Al-Ahdal, who is on the U.S. list of wanted terrorists in Yemen, is also accused of planning an abortive attack last year on a five-star hotel in Yemen where FBI investigators were staying.
A U.S. counterterrorism official in Washington said al-Ahdal, also known as Abu Assem al-Makky, was among the top 20 al Qaeda figures at large.
The Yemeni security reports say al-Ahdal fought in Bosnia and in Chechnya, where he lost his left leg below the knee and was fitted with an artificial leg. He allegedly traveled several times to Afghanistan in 1999 and 2000, and to Ethiopia in August 2000.
Al-Ahdal was arrested in Saudi Arabia in 1999 and spent 14 months in prison for maintaining connections with bin Laden. He was then deported to Yemen.
Bin Laden's family comes from Yemen, and the country, which supports the U.S. war on terror, has acknowledged that elements of al Qaeda are at large there.