Nepal PM quits in hope to end crisis with Maoists

Nepal's Prime Minister Madhav Kumar addresses the nation in Kathmandu May 1, 2010.

KATHMANDU (Reuters) - Nepali Prime Minister Madhav Kumar Nepal resigned on Wednesday in a move aimed at resolving a political crisis and saving the peace process more than three years after the end of a decade-long Maoist civil war.

"I have decided to resign with effect from today to clear the way for a political consensus," Nepal said in a televised address.

The country's Maoists insisted on returning to power at the head of a unity government to oversee the preparation of Nepal's first constitution after it turned into a republic two years ago.

The moderate communist Nepal succeeded Maoist leader Prachanda as prime minister in May last year after the former warlord quit in a conflict over the control of the national army.

Since then, the Maoists, who won the 2008 election for a special constituent assembly tasked to prepare a new constitution, had been pressing for Nepal's resignation to pave the way for a national unity government headed by them.

The former rebels called the resignation a "positive" step to end the deadlock.

"We will make efforts for a national unity government with the consensus of all political parties," Maoist spokesman Dinanath Sharma said.

But other political parties say the Maoists, who are the biggest political group in the assembly but lack the working majority, must dismantle their army camps before they are allowed to form a new coalition.

Maoists have so far refused to do so and the standoff forced the extension of the assembly deadline delaying the preparation of the charter until May next year. They had threatened to disrupt the budget session of parliament beginning next week if the leader did not resign.

Analysts said if the new government also kept the Maoists out it was unlikely to end the turmoil, sparking fresh bouts of street protests and general shutdowns.

The crisis has hit the aid-and-tourism dependent economy already facing long hours of power outages and a double digit inflation, raising popular frustration with the government. (Editing by Krittivas Mukherjee and Miral Fahmy)