Former Maoist rebels in Nepal say they have quit the interim government.
The Maoists have been demanding the abolition of the monarchy ahead of constituent assembly elections due to be held in November.
The prime minister says the constituent assembly itself must decide the monarchy's fate. Analysts say the Maoists will do badly in the polls.
The Maoist move raises fresh questions about how stable the peace process is in the country.
The rebels ended their insurgency last November. More than 13,000 people were killed during their 10-year fight for a communist republic.
The prime minister has not yet accepted the resignations. Some analysts believe the move may be aimed at putting more pressure on the prime minister to accept the Maoists' demands.
"We will not accept the code of conduct announced by the election commission and we will disrupt all ongoing election plans," Maoist deputy leader Baburam Bhattarai told thousands of supporters in Kathmandu.
He was speaking hours after the former rebels submitted the resignations of four of their cabinet members from the government.
Mr Bhattarai also warned that the Maoists could use violence if the government took action against their street protests.
"We will launch peaceful protests, but we have the right to counter those who try to suppress our peaceful programme," he told cheering supporters.
Earlier the Maoists and the other seven parties in the interim government met in the capital to try to iron out their differences over the monarchy.
King Gyanendra's future is the centre of debate
"We have pulled out from the government this afternoon as the talks failed to reach an understanding on the immediate abolition of monarchy and a proportional election system," a senior Maoist, Dev Gurung, told the AFP news agency.
One of the Maoists in the interim cabinet, Krishna Bahadur Mahara, blamed Prime Minister Girija Prasad Koirala for the breakdown in talks.
"The prime minister was not ready to negotiate so his party is responsible," Mr Mahara said.
He ruled out any return to armed conflict. "Now we will focus on peaceful protests to meet our demands."
Correspondents say that Prime Minister Koirala has taken a firm line in refusing to bow to the Maoists' demand that King Gyanendra be stripped of his title and the monarchy abolished.
The civil war brought a decade of bloodshed to Nepal. Human rights groups regularly accused both the Maoists and the military of gross human rights abuses.
The fighting brought further poverty and misery to one of the poorest countries in the world.
King Gyanendra was forced to surrender his powers in April 2006 after the Maoists joined forces with a coalition of seven political parties in a sustained campaign of street protests against his direct rule.