Reuters International

By Gopal Sharma

KATHMANDU (Reuters) - Nepal's embattled Prime Minister K.P. Oli will not resign after the main Maoist party that props up his fragile coalition said on Wednesday it would try to form a new government, plunging the Himalayan nation into crisis.

An aide said the 64-year-old leader, who has been in power for just eight months, would seek cross-party talks. If those fail, a no-confidence motion could follow in parliament, holding out the prospect of more uncertainty.

Oli rose to power with the backing of the Maoists after promising to resolve protests against a new constitution by southern plains dwellers and to step up efforts to rebuild homes destroyed by earthquakes last year.

Increasing public anger at Oli has led the Maoists - who waged a decade-long insurgency before joining mainstream politics in 2006 - to conclude that he was an obstacle to ending the constitutional standoff.

Minority Madhesis, who live along the border with India, had imposed a blockade in protest at a proposal to carve Nepal into seven federal states. They say it would divide their homeland and deprive them of a fair say in running the country.

"Our party has decided to form the new government and we appeal to other political parties to help us resolve the outstanding political problems in the south through talks," said Narayan Kaji Shrestha, a leader of the unified Communist Party of Nepal (Maoist).

Shrestha said the main opposition Nepali Congress party had offered to support Maoist leader Prachanda to replace Oli.

Oli's grip on power has been in question for months, but aide Bishnu Rimal said he would seek clarifications from the Maoists about their concerns.

"We invite all political parties including the Nepali Congress and the Madhesi groups to join this cabinet to make it a national government and resolve all outstanding problems," Rimal told Reuters.

RESOLVING DEADLOCK

Kunda Dixit, editor of the Nepali Times, said Prachanda could resolve the deadlock in the south by bringing the Madhesi parties and the Nepali Congress on board in a government that includes major stakeholders.

Prakash Sharan Mahat, a Nepali Congress lawmaker, said his party was exploring alternatives to Oli, who he said had failed to deliver on promises.

Prachanda, who goes by the nom-de-guerre he used in the insurgency that means "Fierce", will need the support of Oli's Unified Marxist-Leninist Party (UML) or other groups in a fragmented parliament to form a government.

"Any new government does not mean the constitutional issue will be solved like that," said Lok Raj Baral, a commentator and former diplomat. "If any new government wants to amend the constitution, then the support of the UML will be vital."

The earthquakes last year killed 9,000 people and destroyed one million homes. International donors pledged $4.1 billion for reconstruction but most of it remains unspent due to political squabbling.

(Additional reporting by Ross Adkin; Editing by Douglas Busvine and Robert Birsel)

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