SANAA (Reuters) - Yemen's president ordered a broad overhaul of the military on Wednesday in a move that appeared to undermine a political rival and could deepen instability in the impoverished Arab state.

Restoring security in Yemen is a priority for the United States and its Gulf allies because the country is the theatre of multiple conflicts, posing a potential threat to oil export giant Saudi Arabia next door and nearby shipping lanes.

State television said President Abd-Rabbu Mansour Hadi had issued decrees that restructured the armed forces into four major units and abolished the elite Republican Guard and the First Armoured Division.

The president has vowed to unify the army, which is divided between allies and foes of Hadi's predecessor Ali Abdullah Saleh, whose legacy still looms large in Yemen.

The Republican Guard has been headed by Brigadier General Ahmed Saleh, Saleh's son and one of Hadi's foes. The decrees would appear to deprive the general of this senior post.

"The army was restructured into four units: the land forces, the navy, the air force and the border forces," state television reported.

An attempt to implement some of the reforms and trim General Saleh's power in August triggered clashes between Yemeni troops and about 200 members of the Republican Guard, who surrounded the Defence Ministry.

President Saleh made way for Hadi in February after a year of protests under a transition plan backed by Gulf Arab countries and the United States.

The reform is a pivotal part of a U.S.-backed power transfer deal, signed in Saudi Arabia, that aims to hold the country together in the face of internal divisions and separatist movements as well as the challenge from Al Qaeda in the Arabian Peninsula, which is based in Yemen.

PRESIDENTIAL CONTROL

The decrees, published by the official SABA news agency, also gave Hadi direct control over some units separate from the Republican Guard that had also been under General Saleh's command, including special forces and anti-terrorism units.

The decree also places the presidential guard, special operations command and other strategic military units under Hadi's direct command.

Elected in February for a two-year interim period with a mandate to restructure the military, Hadi has been trying to prise powerful relatives of Saleh out of key positions in the forces.

General Saleh this month refused orders to hand over long-range missiles to the Defence Ministry, raising fears of a showdown that could threaten a fragile power structure.

Washington views the Arabian peninsula state as a front line in its war on al Qaeda and its affiliates. The Republican Guards, the best equipped wing of the Yemeni armed forces, had been seen as crucial to containing al Qaeda.

Dissident military officer General Ali Mohsen al-Ahmar, who broke away from Saleh's forces after the protests began last year, welcomed the decrees.

"There is no choice but to execute these decisions, no one can ignore them," he told Al Jazeera satellite television.

"This is where everyone is headed, this is the direction of the revolution. If anyone wants to put a blockage in the way (of the decrees), they will be ruining Yemen; the entire country is in favor of the presidential decree," he said.

(Reporting by Mohammed Ghobari; Writing by Mahmoud Habboush; Editing by William Maclean and Kevin Liffey)