For more than a year, the government has been unable to pay salaries in the impoverished and war-torn country, as the local currency plummets against the dollar.
Late Sunday a cabinet meeting in Riyadh chaired by President Abedrabbo Mansour Hadi, who has lived in exile since 2015, approved "an increase in civil sector salaries, including retirees and contractors", Yemen's state-run Saba news agency reported.
It was not immediately clear when the raise would take effect.
The decision came hours after hundreds of people took to the streets of Aden, the southern province that now serves as the government's de facto capital, burning tyres and blocking main roads to demand government aid.
Protest organisers have called for further civil disobedience until the government instates measures to aid millions of Yemenis struggling to survive.
The riyal has lost more than two-thirds of its value against the dollar since 2015, when Saudi Arabia and its allies joined the government's fight against Yemen's Huthi rebels.
The economic downturn, along with a blockade on the rebel-held international airport and ports, has left Yemenis unable to afford food staples and bottled water.
In January, Saudi Arabia -- Hadi's main ally -- announced a $2 billion bailout to help bolster the central bank. The riyal rose briefly that month but has since plummeted by a hefty 36 percent.
In 2016, more than one million civil servants lost their jobs as Hadi transferred the official central bank from Sanaa to Aden.
The rebels operate their own central bank from the capital, which they have controlled since 2014.
The Yemeni war has triggered what the UN calls the world's largest single humanitarian crisis, with more than three-quarters of the population in need of humanitarian aid and 8.4 million at risk of famine.