Nepal's King Gyanendra has sacked the country's government and declared a state of emergency.
Many of Nepal's former leaders are under house arrest
Phone lines have been cut, flights to the capital are cancelled and the press is being censored.
The king says the cabinet has failed to bring peace to Nepal, which has faced a Maoist rebellion for years.
Some 10,000 people have been killed in the nine-year insurgency, which has seen the rebels gain control of vast stretches of the countryside.
In the first international reaction, India said the development constituted a serious setback to the cause of democracy in Nepal.
The developments "bring the monarchy and the mainstream political parties in direct confrontation with each other," a foreign ministry spokesman said.
The UK government criticised the king's action and appealed for "calm and restraint".
Prime Minister Sher Bahadur Deuba and members of his government have been placed under house arrest and have had their homes surrounded by soldiers.
International flights were turned back from Kathmandu airport, and Nepali news websites went down, Reuters reported.
Some people have already been on the streets, protesting at the removal at the last vestiges of democracy, says the BBC's Charles Haviland in Kathmandu.
He says that by nightfall, the capital's streets felt normal - the armoured vehicles that had been visible earlier were nowhere to be seen.
But, our correspondent adds, just below the surface, things are highly abnormal.
All telephone lines, both terrestrial and mobile, were cut off as soon as the king announced he was taking over power, and just before that, the palace summoned newspaper editors to tell them their publications would be vetted from now on, he says.
In his announcement, King Gyanendra said he was dismissing the government "because it has failed to make necessary arrangements to hold elections by April and protect democracy, the sovereignty of the people and life and property".
Mr Deuba was quoted by the Associated Press news agency as saying the dismissed government would oppose the king's decision.
The king (R) reappointed Mr Deuba as prime minister last year
"The move directly violates the constitution and is against democracy," he was quoted as saying.
The leader of one of the main parties in Mr Deuba's coalition, Madhav Nepal of the Communist Party, said the king "has not talked to any of the people. He has sacked the present government and he is blaming all the political parties," he said.
"So looking at all these things, actually this is a coup, a coup d'etat."
It is the second time Prime Minister Deuba has been sacked by King Gyanendra.
Mr Deuba and his government were dismissed in 2002 for failing to contain the Maoist insurgency.
Early in 2004, political parties began a sustained campaign of street protests demanding the restoration of a democratically elected government.
King Gyanendra reappointed Mr Deuba prime minister last June.
The king said a new cabinet would be formed under his leadership, which would "restore peace and effective democracy in this country within the next three years".
NEPAL IN CRISIS
June 2001 - Gyanendra is crowned king following royal massacre
July 2001 - Sher Bahadur Deuba becomes prime minister following Maoist violence
Oct 2002 - King Gyanendra sacks Deuba and assumes executive power
June 2004 - Deuba reappointed prime minister in place of Surya Bahadur Thapa
Feb 2005 - Deuba sacked, king assumes direct power
He accused the country's fractious political parties of behaving selfishly and of giving no thought to the Nepali people and the welfare of the country.
Our correspondent says many Nepalis will be furious at this complete removal of democratic structures and will fear the consequences of granting more power to the army, which already stands accused of grave human rights abuses.
But, he says, others may give the king a chance. One shop owner told the BBC that something had to be done in the face of political paralysis and corruption.