The ceremony in the town of Ad-Dali was for new recruits to the separatist-dominated Security Belt Forces, a formation trained and equipped by the United Arab Emirates to patrol territory retaken from northern rebels or Al-Qaeda, its spokesmen Majed al-Shuaibi said.
Five soldiers were killed and nine others wounded when the missile hit the reviewing stand during the march-past.
Shuaibi told AFP the missile was fired by the Huthi Shiite rebels who control the capital Sanaa and much of the north.
But there was no immediate claim of responsibility from the Iran-allied rebels, whose forces are present in the mountains just 60 kilometres (40 miles) north of Ad-Dali.
In August, 36 Security Belt soldiers were killed in a drone and missile attack by the Huthis on a passing out ceremony just outside the main southern city of Aden.
The security forces in the south have also come under repeated attack by both Al-Qaeda and the Islamic State group.
There has also been a war within a war between rival unionist and separatist elements of the loyalist security forces.
The Security Belt Forces seized Aden in deadly fighting with unionists in August and a fragile truce reached in Saudi Arabia last month has so far failed to produce a promised power-sharing government.
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