The man was executed by firing squad and his body was displayed at a football stadium near Shehr in the southeastern Hadramawt province, an Al-Qaeda stronghold, the source said.
Yemen is the ancestral home of Osama bin Laden and the home base of Al-Qaeda in the Arabian Peninsula (AQAP).
When police arrived at the scene, the man was hanging with the Al-Qaeda black and white flag alongside a banner reading, "A US spy in the Arabian Peninsula," the official said.
A statement was also found in which AQAP threatened to execute "any intruder who infiltrates among Muslims, places chips in their vehicles and their wedding convoys and gets them killed in return for a few dirhams," according to the source.
"These spies are the striking force by which the crusader US enemy reaches us," it added.
SHI/SHI