Kathmandu: In a major setback to Nepal's fragile peace process, Maoists walked out of the government on Tuesday after Prime Minister Girija Prasad Koirala rejected their demand for declaring Nepal a republic before the constituent assembly polls.

Four Maoists ministers today resigned enmasse from the Koirala-led interim government, which the former rebels joined in April under the peace deal that ended the decade old insurgency in the Himalayan nation.

Those who resigned include Minister for Information Krishna Bahadur Mahara, Minister for Local Development Dev Gurung, Minister for Physical Planning Hisila Yami and Minister for Women and Social Welfare Khadga Bahadur Bishwokarma.

Minister for Forest Matrika Yadav had resigned two months ago as he had differences with other members of the cabinet.

The Maoists had issued an ultimatum till on Tuesday to fulfil their 22 point demand, which include declaring Nepal a republican state by abolishing monarchy and holding constituent assembly polls through proportionate voting system.

Maoist chairman Prachanda and senior leader Baburam Bhattarai walked out of the four party meeting after it failed to reach a consensus, said Nepali Congress central member Arjun Narsingh KC.

KC, however, said, "This is not the end of dialogue with the Maoists, there is still possibility of continuing dialogue to resolve the issue".

Koirala told Prachanda that except the two demands which were already settled the government is ready to negotiate on all other demands. But the Maoists did not come to agreement and the talks failed, he said.

"Talks are still going on among the seven party alliance leaders to resolve the stalemate. We are trying to find out a consensus even after the Maoists walked out of the government," KC said.

Others present at the crucial meeting were CPN-UML general secretary Madhav Kumar Nepal and Nepali Congress Democratic president Sher Bahadur Deuba.

Koirala had stuck to the earlier decision of the eight party alliance that the fate of monarchy should be decided through the Constituent Assembly polls.

The Maoists are also planning to hold mass meeting in Tundikhel this afternoon, where Prachanda, Bhattari and other senior leaders of the party are expected to speak.

Maoist leaders are likely to announce on Tuesday their fresh agitation programme. Thousands of Maoist cadres are rallying in Kathmandu since morning demanding republic which has been a causing hours of traffic jam in the capital. They have also used hundreds of school buses and public buses to ferry their cadres from different places to the meeting venue.

However, the seven party alliance leaders have urged the Maoists not to quit the government and withdraw their agitation programme.