The plane "had a technical failure at 15:40 (1840 GMT) and crashed... in an area of operations" in Yemen, Turki al- Maliki, the spokesman for the Saudi-led coalition, told AFP.
Iran has violated a United Nations arms embargo by failing to block supplies to Yemen's Huthi rebels of ballistic missiles that were fired at Saudi Arabia, according to a United Nations experts' report.
Al-Maliki renewed his call to the global community to take more serious and effective steps to stop the blatant Iranian violations through the continued smuggling and transfer of ballistic missiles and weapons to terrorist groups.
Brigadier-General Tareq Mohammed Saleh - who led a brigade of an elite Yemeni army unit before his uncle was forced to step down in 2012 - had been expected to help lead Saleh's supporters in a fresh fight against the Iran-aligned Houthis, who control most of northern Yemen, including the capital Sanaa.
The nephew of Yemen's late President Ali Abdullah Saleh has surfaced in the country's south, weeks after he disappeared amid violence in the capital, Sanaa.
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On Wednesday, Houthi rebels threatened to cut off the Red Sea shipping line if the Saudi-led coalition forces keep advancing toward the Yemeni port city of Hodeidah, according to Houthi-controlled Saba agency.
Iran has strongly denied arming the Huthis and in December 2017 accused the USA of presenting "fabricated" evidence that a November 4 missile fired at Riyadh airport was Iranian-made.
The finding is expected to bolster accusations from the USA and Saudi Arabia that Iran has supplied weaponry to the Huthis in their war against the Saudi-led coalition.
More than 10,000 civilians have been killed in fighting and airstrikes; more than 7 million are on the brink of starvation and over 19 million don't know where their next meal is coming from; medical infrastructure has collapsed; and a cholera outbreak has affected 1 million people.