The soldiers reportedly fired into the crowd, killing at least 20 people. Taiz has been a hotbed of anti-government protests; it and several other cities saw violent clashes over the weekend.
Monday, Yemeni warplanes bombed a coastal town on the Gulf of Aden. This after militants captured tanks, seizing banks and government offices there on Sunday.
Yemen's unrest has veered dramatically in the past week.
The failure of a mediation effort by Saudi Arabia and other Gulf nations seeking to persuade longtime President Ali Abdullah Saleh to transfer power gave way to five days of fierce street battles in the capital last week between pro-Saleh military units and armed men loyal to the country's most powerful tribal leader, who has joined the opposition. That fighting killed 124 people.
Saleh has repeatedly warned that Islamic militants and al Qaeda would seize control of the country if he steps down.
The Associated Press contributed to this story