The powers of the National Assembly will be assumed by the Emir and the country's cabinet, state TV reported
The Southern Transitional Council (STC) accused the government of failing to perform its duties and of "conspiring" against the southern cause, and said self-governance had begun at midnight.
The government condemned the move and said the separatists -- who have long agitated for independence in the south -- would be responsible for the "catastrophic and dangerous" outcome.
The breakdown between the one-time allies comes as a Saudi-led coalition, which backs the internationally recognised government in a battle against the Iran-backed Houthi rebels, has extended a unilateral ceasefire aimed at fending off the coronavirus pandemic -- a move rejected by the Houthis.
Yemen's separatists signed a power-sharing deal in Riyadh last November that quelled a battle -- dubbed a "civil war within a civil war" -- for the south that had in August seen them seize control of the second city of Aden.
The Riyadh pact quickly became defunct, failing to meet deadlines for key measures including forming a new cabinet with equal representation for southerners, and the reorganisation of military forces.
The STC announced in its statement that it was declaring "self-governance in the south starting midnight on Saturday, April 25, 2020.
"A self governing committee will start its work according to a list of tasks assigned by the council's presidency," it said.
Aden residents reported heavy deployments of STC forces in the city and a separatist source said they had set up checkpoints "at all government facilities, including the central bank and port of Aden".
Military vehicles drove through the city with STC flags flying aloft.
The political landscape in the south is complex, and despite the STC's declaration some southern cities said they did not recognise the call to self-rule and would remain aligned with the central government.
Yemen's foreign minister Mohammad Al Hadhrami said the STC move was "a continuation of the armed rebellion last August and a declaration of rejection" of the Riyadh agreement.
The Saudi-led coalition has yet to comment on the STC's declaration.
- Deep divisions -
Tens of thousands of civilians have been killed over the past five years in the war between the government and the Houthi rebels.
Earlier this month, Yemen reported its first case of coronavirus in Hadramawt, a southern government-controlled province, raising fears of an outbreak.
Compounding the country's troubles, at least 21 people were killed in flash flooding this month, with Aden's streets submerged and homes destroyed.
The UAE, like the STC, has a zero tolerance policy towards the Muslim Brotherhood and Yemen's Brotherhood-influenced Al-Islah party, which has representatives in the internationally recognised government.
Last August, deadly clashes broke out between the government and STC forces who seized control of Aden, ousting unionist forces who had set up base there when President Abedrabbo Mansour Hadi fled the Houthi-held capital Sanaa in February 2015.
The powers of the National Assembly will be assumed by the Emir and the country's cabinet, state TV reported
The duo put on 210 runs for the first wicket before Mohit Sharma delivered the finishing blow with a three-wicket haul at Ahmedabad
The Gunners have gathered three points to temporarily open up a four-point lead over Pep Guardiola's side at the top of the table
Since mid-April, flash flooding and other floods have left about 100 people dead in 10 of Afghanistan's provinces
In a staff report, the fund says political complexities and high cost of living could weigh on policy
Closed-circuit video images showed the bus veering sharply in the road before crashing from a bridge and sinking within seconds
EU foreign policy chief says there will be more nations following suit because Belgium has also decided to recognise Palestinian state
It was the UAE that submitted the historic resolution in May as part of its role as chair of the Arab Group