ADEN (Reuters) - Yemeni troops backed by tanks and helicopters assaulted an eastern city on Wednesday to drive out al Qaeda-linked militants who had planned to set up an Islamist emirate there, a local official said.

Three soldiers and several militants were killed in the fighting at Ghail Bawazeer, north of the Hadramout provincial capital of al-Mukalla. Clashes began early in the morning involving dozens of soldiers, the official said.

Ambulances transported casualties to hospitals as residents stayed home to avoid being caught in the battle.

The Yemeni government is struggling with an Islamist insurgency, a separatist movement in the south, and a spate of attacks by gunmen on government facilities and military and security officers.

The unrest has alarmed neighboring Saudi Arabia, the world's leading oil exporter, as well as the United States, which views Yemen as a frontline in its struggle against al Qaeda.

Islamist militants in Hadramout have distributed leaflets in Ghail Bawazeer, the province's fourth-largest city, saying they planned to declare an Islamist emirate there.

(Reporting by Mohammed Mukhashaf, Writing by Sami Aboudi, Editing by William Maclean and Angus MacSwan)