The deal will reportedly see the secessionist Southern Transitional Council (STC) handed a number of ministries, and the government return to the southern city of Aden, according to officials.
Yemen's internationally recognised government signed a Saudi-brokered power-sharing deal with southern separatists on Tuesday, aimed at ending a conflict simmering within the country's civil war.
"This agreement will open a new period of stability in Yemen. The Kingdom of Saudi Arabia stands with you," Saudi Crown Prince Mohammed bin Salman said at a signing ceremony in Riyadh aired on state TV.
"It's a joyful day in Saudi as the two sides come together."
The deal will reportedly see the secessionist Southern Transitional Council (STC) handed a number of ministries, and the government return to the southern city of Aden, according to officials and reports in Saudi media.
The UN special envoy for Yemen, Martin Griffiths, congratulated the two sides on the deal which he said would propel efforts to end the wider civil war that has devastated the country.
"The signing of this agreement is an important step for our collective efforts to advance a peaceful settlement to the conflict in Yemen," he said in a statement.
"Listening to southern stakeholders is important to the political efforts to achieve peace in the country."
Security Belt Forces, dominated by the STC, in August took control of Aden, which had served as the beleaguered government's base since it was ousted from the capital Sanaa by Iran-backed Houthi rebels in 2014.
The clashes between the separatists and government forces, who for years fought on the same side against the Houthis, had raised fears the country could break apart entirely.
The warring factions in recent weeks held indirect talks mediated by Saudi Arabia in the kingdom's western city of Jeddah, which culminated in the deal signed in Riyadh.
Both Yemen's President Abd Rabbu Mansour Hadi and STC leader Aidarous al Zoubeidi attended the ceremony.