Nepalese security forces have opened fire on protesters in the capital, Kathmandu, killing at least three people, hospital sources say.
Security forces have been posted throughout Kathmandu
At least 100,000 people defied a shoot-on-sight curfew, marching on central Kathmandu to rally against the absolute rule of King Gyanendra.
Doctors say at least 40 others were injured, some seriously.
The king imposed direct rule in February 2005, saying the government had failed to defeat Nepal's Maoists.
Thursday's deaths were the first in the capital during two weeks of national strikes and protests by an alliance of seven opposition parties.
Ten people have been killed elsewhere since the strike began.
The UN human rights body, the UNHCR, on Thursday accused the government of obstructing the deployment of its monitors in the Kathmandu Valley in "clear violation" of an agreement.
British ambassador to Nepal Keith Bloomfield told the BBC the situation was "deteriorating rapidly".
He said Indian envoy Karan Singh had held talks with King Gyanendra and delivered a "very tough message".
"We believe the complete restoration of democracy is an essential first step," Mr Bloomfield said. "If the king doesn't act immediately... the constitutional monarchy may no longer be on the table."
Mr Singh, who has returned to Delhi, said he was hopeful of a royal announcement soon that would "considerably defuse the situation".
The opposition alliance has called for another mass protest at the ring road on Friday.
'Freedom, not the king'
Security forces on Thursday fired live ammunition and used rubber bullets and tear gas as protests in the Kalanki area, in the west of Kathmandu, turned violent.
An eyewitness at the scene told the BBC he had seen the body of a youth being dragged through the street, apparently lifeless after being shot in the head.
Other injured protesters were lying in the street with no ambulances able to attend to them, the BBC's Charles Haviland reports.
The 18-hour curfew was in place from 0200 local time (2015 GMT Wednesday) until 2000 (1415 GMT) in the city centre, stretching to 200 metres beyond the ring road.
But large crowds tried to break through into the curfew area.
The BBC's Sanjoy Majumder watched as more than 2,000 people gathered in the Chabail area chanting "We want democracy".
Raju Lama, one of the protesters, said: "We want freedom. We do not want the king any more."
There were also reports of crowds gathering in the town of Bhaktapur, near Kathmandu, where a curfew was also imposed.
The government has accused Maoist rebels of infiltrating the rallies to sow violence.
In addition to the curfew, the government has doubled the length of detention orders on a number of imprisoned human rights campaigners and opposition politicians.
Minendra Rijal of the opposition Nepali Congress party told the BBC that the will of the people was for King Gyanendra to restore democracy.
"King Gyanendra has to be ready to hand over power to the people's representatives," he said.
"Our basic aim is to hold elections to the constituent assembly. Anything else is not acceptable to the people of Nepal."
International condemnation of the crackdown has been growing.
"Ultimately we have to have a political solution," said Ian Martin, the UN High Commissioner for Human Rights in Nepal.
"The demonstrators are not going to give up and the last thing we want to see is an increased use of force by the security forces."