The surrender would effectively end a southern bid to end a four-year union with the north, after the northern capture of Mukalla, the second largest city, from which the southern leader, Ali Salem al-Baidh, was reported to have fled.
Southern political sources said the United States was helping in the negotiations, which would include an offer to leaders of the breakaway south to leave the country or remain with guarantees.
'The purpose of those negotiations, which are going on under American sponsorship, is to avoid further bloodshed in Aden and to surrender what remains of its areas without fighting,' a southern source said.
In Washington, the US denied it was involved in any surrender negotiations. 'Those reports that negotiations are going on under American sponsorship are incorrect,' one US official said. In Sanaa, the northern capital, sources said there were direct contacts between the north and the south but did not elaborate. Sources in the eastern Hadramawt region said Mr Baidh had fled to the mountains.
They said the southern Oil Minister, Saleh Abu Baqr Hussainoun, who commanded southern forces in eastern Hadramawt, had been killed on Monday. Northern officers in Mukalla told journalists northern forces were chasing southern troops to the east. Northern forces had also seized two residential districts in Aden, the battered city of half-a-million people.
Since war broke out on 4 May, the larger northern forces have pushed the southerners back from the pre-1990 north-south border into Aden, and have vowed to crush them.
Another southern source said three southern leaders, including the Interior Minister, Mohammad Ali Ahmad, planned to leave by boat to Djibouti for talks in Sanaa with northern leaders.
In Sanaa, an official source said the northern government would welcome a visit by the southern leaders.
But he repeated that negotiations must be within the framework of unity and the authority of northern President Ali Abdullah Saleh - demands which the south rejected before its military setbacks. Residents of Aden, suffering water and food shortages and daily northern shelling, said there was no fighting last night.