The dangerous military escalation following a breakdown in the cease-fire between government supporters and Shiite rebels is fueling the spread of al-Qaida and the Islamic State extremist groups, the U.N. special envoy to Yemen warned the Security Council on Wednesday.

Ismael Ould Cheikh Ahmed, who has been trying to halt the fighting and negotiate a political solution, said a new cessation of hostilities is key to restarting talks to end the civil war in the Arab world's poorest country.

Houthi rebels and forces allied with ousted President Ali Abdullah Saleh seized the capital Sanaa in September 2014, forcing the internationally recognized government to flee the country. A Saudi-led, U.S.-backed coalition has conducted an extensive air campaign against the Houthis since March 2015, pushing them out of southern Yemen, but failing so far to dislodge them from the capital Sanaa and the rest of the north. Meanwhile, extremist groups including the Islamic State and Al Qaida in the Arabian Peninsula have exploited the turmoil and expanded in the south.

Ahmed said the two militant groups "continue to wreak havoc in significant parts of Yemen," pointing to Monday's suicide bombing by the Islamic State group in the southern city of Aden that killed dozens as just one example.

Ahmed said he was encouraged by the Yemeni army's growing ability to confront extremist groups but warned "the absence of the state in many parts of Yemen, in addition to the chaos created by war, will continue to facilitate the expansion of these terrorist groups which represents a real threat to the region."

Meanwhile, the escalation of fighting has led to a steadily worsening humanitarian situation with over three million people displaced from their homes, food prices rising sharply while incomes have dropped dramatically amid a liquidity crisis, Ahmed said.

On Tuesday, U.N. Humanitarian Coordinator Jamie McGoldrick said at least 10,000 civilian have been killed and wounded since the conflict began.

Ahmed briefed the council on efforts to restart talks, presenting the outline of a possible agreement that would allow for the formation of a government of national unity, followed by the withdrawal of heavy weaponry from the capital Sanaa and other vital areas to be overseen by senior military officials acceptable to both parties, who would then assume responsibility for security.

But Ahmed warned that resumption of talks would only be possible if the parties within Yemen refrained from unilateral actions like the recent announcement by Saleh and his allies of the formation of a Supreme Political Council with broad governing powers.

ABC News