Speaking in the Commons, Sir Michael Fallon said a "limited number” of BL-755 cluster munitions exported from Britain in the 1980s have been dropped in airstrikes.
Amnesty International said a UK cluster bomb apparently malfunctioned in January, leaving scores of deadly unexploded small bombs over a wide area near a farm in Al khadhra village, six miles from the Saudi border.
Saudi Arabia has confirmed it will not use further BL-755s in Yemen, where at least 9,000 people have been killed in the war.
Sir Michael welcomed the decision, and said Britain’s sales of military equipment to Saudi Arabia and other Gulf allies would be kept under review.
Amnesty said the UK should halt all arms sales to Riyadh.
A Saudi-led coalition used the cluster munitions to protect its borders in the conflict, said a Saudi statement.
State news agency SPA reported: "The government of Saudi Arabia confirms that it has decided to stop the use of cluster munitions of the type BL-755 and informed the United Kingdom government of that.”
:: Yemen’s forgotten war making new enemies for Britain
The conflict in Yemen began when Shia Houthis, supported by former president Ali Abdullah Saleh and allies, seized the capital, Sana’a, in September 2014, overthrowing Saudi-backed President Abed-Rabbo Mansour Hadi’s government.
A Saudi-led coalition of mostly Gulf Arab nations then launched a military campaign against the Iran-backed rebels in March 2015.
The UN estimates at least 4,125 civilians have been killed since airstrikes began.
The US has also grown increasingly worried about civilian casualties caused by coalition airstrikes in Yemen and cut some arms sales to the kingdom last week.
The new prime minister of the rebel Houthi government, which has been set up in Yemen, accused the UK of war crimes for sending arms to Saudi Arabia.
"They have sold cluster bombs to Saudi Arabia,” Abdulaziz bin Habtour told Sky News in his office in Sana’a.
"They know the Saudis are going to drop them on Yemen… in Sa’adah and in Sana’a and other provinces.
"They are participating in the bombing of Yemen people.”
An international treaty signed by Britain bans cluster bombs, which carry extraordinary risks to civilians because they contain groups of smaller bombs that explode over a wide area and can go off much later.
The words of the Convention on Cluster Munitions state that signatories will "never under any circumstances assist, encourage or induce” anyone to use such munitions.
However, Saudi Arabia and the United Arab Emirates are believed to have British-made cluster bombs bought in the 1980s and 1990s.
The war has allowed extremist groups to flourish. Islamic State militants claimed responsibility for a suicide bombing on Sunday in the southern port city of Aden, which killed more than 50 soldiers.
copied from: news.sky.com