Immediately after his formal appointment as Nepal's new prime minister, Koirala appealed to the Maoist rebels to begin talks and the guerrillas responded by laying down their terms.

Dr Baburam Bhattarai, one of the top leaders of the underground rebels, said his banned party would be ready to begin dialogue with the new government if it met key conditions.

Speaking from hiding, Bhattarai said the new government would have to commit to holding unconditional elections to choose a representative assembly that would write a new constitution for Nepal and eventually decide if the Himalayan kingdom would retain monarchy or become a republic.

The government would also have to release all political detainees, including Maoist leaders and cadres, and remove the terrorist tag on his party, Bhattarai told Nepal1 television channel.

The Communist Party of Nepal-Maoist and its sister organisations were declared terrorists in 2003 by the government of then prime minister Surya Bahadur Thapa after peace talks between the rebels and the government broke down.

Since then, there has been a red corner notice - a high international alert - for the arrest of its top leaders, some of whom even have a reward offered for their capture.

Though the war between the Maoists and the government turned bitter in early 2000 when Koirala was prime minister, Koirala's Nepali Congress and six other opposition parties last year reached an understanding with the guerrillas.

Immediately after his official appointment Thursday, Koirala issued a statement, telling the rebels the new government would honour the pact with them and hold constituent assembly elections.

The Maoists have called a three-month ceasefire from Wednesday midnight to show their eagerness for peace and returning to mainstream politics. However, they have warned they would enforce a blockade of Kathmandu and key cities if the new government wavered on its commitment.