Witnesses said government loyalists opened fire on students encamped near Sanaa University, killing two and wounding 23, before police arrived and returned fire.
About 1,000 students have been camping since Sunday at a square near the university, which they have dubbed Al-Huriya (Liberty) Square.
President Ali Abdullah Saleh's General People's Congress party has indefinitely postponed a counter-demonstration originally planned for Wednesday due to the deaths.
But members of the party have begun resigning outright over the repression of the demonstrations.
"I presented my resignation with seven others to protest the methods used by the General People's Congress to quell protests in the country," MP Abdu Bishr said.
He added that "59 other party members are getting together to present a collective resignation".
Protests spread across the country on Monday since a movement demanding for the end of Saleh's rule began in the capital Sanaa last week.
Saleh previously said he would only leave in the event of an election defeat.