* Al-Mahfad is main bastion of al Qaeda in Arabian Peninsula
* Army still battling militants in another southern province
* Army offensive follows intense two-day air strike campaign (Adds quotes, details)
By Mohammed Mukhashaf
ADEN, Yemen, May 6 (Reuters) - Yemeni government forces captured al Qaeda's main stronghold in the southern part of the country on Tuesday after insurgents blew up the local government compound there and fled, the Defence Ministry said.
The mountainous al-Mahfad area of Abyan province, along with Azzan in the adjacent province of Shabwa, has been the militants' main stronghold in Yemen since 2012. In that year, the Yemeni army, with U.S. help, drove the fighters from towns they had seized during a chaotic national uprising in 2011.
Major powers are keen on Yemen curbing the Islamist insurgents and restoring order in the south to prevent threats to global No. 1 oil exporter Saudi Arabia next door. They also want to reduce any risk of Yemen being used as a springboard for attacks on Western targets.
The government forces' offensive is the most concerted drive against al Qaeda in the Arabian Peninsula (AQAP) - seen by Washington as one of the group's most lethal wings - in nearly two years. The group has been blamed for waging deadly attacks against security forces, foreigners and oil and gas facilities.
The Yemeni Defence Ministry's website quoted an official military source as saying that soldiers and allied tribal militias - known as 'popular committees' - had entered al-Mahfad, a town of about 30,000-40,000 inhabitants on the main road from Abyan to the eastern al-Mahra province.
"The source said al Qaeda elements blew up the government building in al-Mahfad," the ministry cited the source as saying.
A local militia commander, Amin Qassem, later told Reuters by telephone that the government forces had met stiff resistance from the militants in the fight for al-Mahfad.
"The army and the Popular Committee members have completed control of al-Mahfad and we are now in the centre of the district. Al Qaeda elements have fled to the mountains, but we will keep going after them," Qassem said.
Authorities have said dozens of militants of several nationalities have been killed during the latest offensive, now into its second week. The offensive follows a series of air strikes, including by U.S. drones, against insurgent bastions, in which Yemen said some 65 fighters had been killed.
Ali Mansour, an eyewitness of the fighting at al-Mahfad, said he was relieved by the army's arrival.
"The entrance of the Yemeni army to al-Mahfad ends a long period of suffering that the residents had been living through while al Qaeda militants were present in the area," Mansour said by phone. "Their presence meant worry and fear," he added.
Witnesses said the army had used heavy artillery to push into al-Mahfad and said security forces had set up checkpoints on the main road.
The Defence Ministry said in text messages that the army had captured seven suicide belts, 10 explosives devices and nearly 3,000 rounds of ammunition in al-Mahfad.
The fighting is still raging in Shabwa, the other front where the Yemeni army is tackling the insurgents, a local official said.
"We expect the main and decisive battles to be in the areas of Mayfa'a and Azzan," the official said.
Last week a Yemeni official and tribal source confirmed the killing of the head of the AQAP cell in al-Mahfad, where Yemeni authorities said an air strike on April 20 had targeted the militants' training camps. (Additional reporting by Mohammed Ghobari in Sanaa, Writing by Yara Bayoumy, editing by Sami Aboudi and Gareth Jones)