The separatists, who accuse the Saudi authorities of supporting Yemen's Sunni Muslim central government, came under sustained attack from F15 and Tornado warplanes. Al-Jazeera televison reported that one position had been hit by about 100 missiles in the space of an hour.
Saudi troops were being mobilised near the border for a possible incursion. There were also unconfirmed reports on Thursday that Saudi special forces were already inside Yemen.
Yemen launched Operation Scorched Earth in August to crush the rebellion led by the Huthi tribe. Aid groups say around 150,000 people have been displaced by the fighting, which first broke out in 2004.
Saudi officials in Riyadh said the air force had bombed Yemeni rebels who had seized a border area inside the kingdom, killing at least one Saudi soldier on Wednesday. They claimed at least 40 rebels had been killed in the Saudi response and the territory recaptured.
"After what happened yesterday, it is clear they have lost track of reality and it has got to a point where there is no other way. They have got to be finished," said a Saudi official.
The Yemeni government denied that Saudi planes had struck across the border. The authorities in the capital Sana'a have repeatedly dismissed accusations by the northern rebels that they have colluded with Riyadh to combat them.
The Saudi response followed the killing of at least one border guard on Wednesday.
There has been growing concern in the region that Yemen's civil war could spill across its borders, sucking in Saudi Arabia on the side of the government, and possibly Iran, which is largely Shia Muslim, which would sympathise with the separatists.
Saudi Arabia, which shares a 930-mile border with Yemen, was already anxious about the instability and militancy of factions inside its neighbour, which is also facing separatist sentiment in the south and a growing threat from a resurgent al-Qaeda.
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