State news agency Saba quoted the Taez governor as denying anyone was killed in protests on Sunday. Instead, eight members of the security forces were wounded, one seriously, he said.
The opposition said on Saturday it wants Saleh to end his three-decade grip and transfer power to his deputy for a transitional period, a proposal the veteran leader dismissed on Sunday.
At least 1,200 others were injured in Taez, some by live rounds, as police used tear gas and batons to disperse the protesters, said medics in the city's Al-Thawra hospital, adding many were in a critical condition.
Police took wounded protesters away to an unknown destination, witnesses said, adding the security forces kept firing as they pushed protesters back to a square where they have been staging a sit-in.
After hours of clashes, tanks deployed around "Freedom Square" where the protesters have camped out since February, a security official and witnesses said.
Meanwhile, in the main southern city of Aden, thousands demonstrated in solidarity with the protesters in Taez, an AFP correspondent reported.
The demonstrators carried black flags and banners that read, "The people of Aden support the people of Taez," and chanted, "We will protect you with our lives Taez" and "The people want to overthrow the regime."
The opposition Common Forum on Saturday called on Saleh to hand power to Vice President Abdrabuh Mansur Hadi in a new "vision for a peaceful and secure transition of power."
Hadi, who is from the southern province of Abyan, is a member of Saleh's ruling General People's Congress.
It was the first time the opposition had put forward a proposal for a transition it has demanded since anti-Saleh protests erupted in late January.
In what appeared to be his response, Saleh told visitors the Common Forum should "end the crisis through calling off protests and removing roadblocks."
Last week he said he was not clinging on to power.
"I will transfer power to the people, who are the source and owner of power," Saleh said, warning Yemen was a "time bomb" and could slide into civil war like Somalia across the Gulf of Aden.
Young protesters appeared to distance themselves from the opposition's proposal, announcing at their main sit-in in Sanaa that their demand remained the "departure of the president and all the figures of his regime."
Under the opposition plan, Hadi would take over on a caretaker basis and reorganise the myriad security agencies, which are the backbone of Saleh's regime.
"An agreement would be reached with the temporary president on the form of power during the transitional period, based on national consensus," the opposition statement said.
It stipulated a transitional national council should begin dialogue, that a panel of experts should draft constitutional reforms, and that a government of national unity be formed for the transition.
A high electoral commission would be created to oversee holding of a referendum on reforms and parliamentary and presidential elections.
In addition, the opposition stressed the "right to peaceful expression, demonstrations and sit-ins for all the people of Yemen," and demanded a probe into the use of deadly force by security forces against protesters.
It said those responsible for attacking demonstrators "should be tried, while those wounded and disabled and the families of martyrs should be compensated."
After more than two months of protests, which Amnesty International said have cost at least 95 lives, Saleh had offered to step down before his term expires in 2013.
But he hardened his stance after a massive pro-regime rally on March 25.
Protest leaders say Saleh has been emboldened by US support for an ally seen as a key partner in its battle against Al-Qaeda.