A senior leader of Nepal's Maoists says the rebels will accept the monarchy if the country's people were in favour of retaining it.
The Maoists called off a unilateral ceasefire last month
In an interview with the Nepal's Kantipur newspaper, rebel leader Prachanda also renewed an offer of dialogue with the government.
The offer came even as seven soldiers and police died in eastern Nepal in a suspected rebel attack.
The rebels have ordered a shutdown to disrupt local elections due this week.
In the newspaper interview, the rebel leader said his group is ready for discussions on all issues including elections for a constituent assembly to draw up a new constitution.
"We will accept it if the constitution assembly says we want monarchy," the Associated Press quotes him as saying.
"We will accept it even if the people say we want an active monarchy," Prachanda said.
The king has promised parliamentary elections by next spring
This is not the first time that the rebel leader has said the group could reconsider its opposition to the monarchy.
In November he told the BBC that the rebels would accept the monarchy as long as the vote in its favour was free and fair and supervised by foreign monitors.
In the latest interview, the rebel leader also said the rebels would respond positively if the government declared a ceasefire although he added that he did not think that would happen.
The rebels called off a unilateral ceasefire a month ago after the government refused to reciprocate, saying the rebels would use it to regroup and rearm.
In fresh violence, at least seven soldiers and policemen died in separate clashes in Udayapur and Panauti in the east.
The clashes followed attacks on government troops.
The authorities say scores of rebels are believed to have been killed but said they were awaiting details.
The clashes come as normal life was disrupted across Nepal following the seven-day shutdown, one of the longest ordered by the rebels.
The rebels have warned of violent reprisals against anyone breaking the strike and have also threatened to kill anyone participating in Wednesday's polls.
The rebels and the opposition say the poll is an attempt to entrench King Gyanendra's seizure of power in 2005.
The authorities say the municipal elections will pave the way for parliamentary elections next year.