* Battle pits Shi'ites against Sunnis and govt troops
* Houthis say their fight was not against the government
* Medics describe bodies strewn in ruined streets (Adds details, background)
By Mohammed Ghobari
SANAA, July 8 (Reuters) - Shi'ite Muslim fighters captured one of the main cities in northern Yemen on Tuesday, a local official and residents said, after fighting that has killed at least 200 people and puts the Shi'ites on the outskirts of the capital.
The fall of Omran represents a major blow to the government of President Abd-Rabbu Mansour Hadi, who has been trying to stabilise the U.S.-allied country following nearly three years of turmoil that forced his predecessor to step down.
The Shi'ite Houthis, named after the tribe of their leader, said their fight was against rivals loyal to the Islamist Islah party, and they had no intention of attacking the capital Sanaa, just south of Omran.
Local officials and witnesses said the Houthis seized Omran after battles in which about 100 were killed and 150 wounded on Tuesday alone, following more than 100 deaths in previous days. Fighting continued around an army camp in the city, they said.
"Justice and right have prevailed, the underprivileged sons of Omran have prevailed," said Mohammed Abdul-Salam, official spokesman for the Houthis.
Medics said dozens of bodies lay in streets strewn with the rubble of destroyed homes.
The conflict pitted the Shi'ite tribal militias against Sunni Muslim tribesmen allied with government troops.
Omran has long been a stronghold of Bani al-Ahmar, one of the most powerful tribes in Yemen. Prominent figures from the mainly Sunni Muslim clan are top leaders in Islah or hold senior positions in the armed forces or the government.
Hadi recently warned that Omran was a red line and he would not tolerate it falling into Houthi hands.
The current round of fighting began last week after a June 23 ceasefire collapsed.
The Houthis blamed the end of the truce across north Yemen on an advance in al-Jouf Province northeast of Sanaa by army units loyal to the Islah party, which has links to the Sunni Muslim Brotherhood.
The government said the advance on the town of al-Safra had been prompted by the failure of Houthi fighters to vacate positions in compliance with the terms of the ceasefire.
On Saturday Yemen's air force bombed Houthi positions in Omran in fighting that killed 34 soldiers and 70 Houthis, medical sources in the city said on Sunday.
Abdul-Salam said his group had dealt "painful blows" to what he called the "takfiri" militias in Omran - a phrase used to refer to hardline Sunni Islamists who view Shi'ites as heretics.
"The battle was swift and beyond their expectations, and victory, with God's grace, was massive," he said in a statement.
He said that the Houthis would work with the Omran governor to ensure that all city residents lived in peace and security.
Houthis demand more rights for Shi'ites in the majority Sunni country.
Some Sunnis fear the Houthis want to revive the Shi'ite Zaydi Imamate, the 1,000-year-long rule of Yemen in which power was passed through leaders claiming descent from the Prophet Mohammed. The imamate ended in a 1962 military coup.
"Goodbye Omran," said Kamal al-Ba'adani, a senior official at the ministry of local government in Sanaa. "After 50 years of republican rule, you have gone back to the imamate," he added. (Reporting by Mohammed Ghobari; Writing by Sami Aboudi; Editing by Andrew Roche)