KATHMANDU (Reuters) - Nepal’s Maoist Prime Minister Prachanda resigned on Monday after a crisis sparked by his sacking of the country’s army chief, plunging the Himalayan republic into political turmoil.

Army chief General Rookmangud Katawal (L) talks with his generals during an event to mark Loktantra Diwas (Democracy Day) in Kathmandu in this file photo April 24, 2009. Nepal's President Ram Baran Yadav has asked Katawal, who was sacked May 3, 2009, to stay in his post, a spokesman said on Monday, defying the Maoist government and thrusting the Himalayan republic deeper into political crisis. Picture taken April 24, 2009. REUTERS/Gopal Chitrakar/Files

The 8-month-old Maoist-led government fired General Rookmangud Katawal on Sunday, accusing him of disobeying instructions not to hire new recruits and refusing to accept the supremacy of the civilian government.

But President Ram Baran Yadav, who hails from an opposition party and is commander-in-chief of the army, called the move unconstitutional.

“I have resigned from the cabinet,” Prachanda said in a televised address to the nation.

“We made enough efforts to forge a consensus but various forces were active against this and were encouraging the president to take the unconstitutional and undemocratic step (of keeping Katawal in office),” he said.

The crisis is a huge blow to a 2006 peace pact that ended a decade-long civil war that pitted the army against the Maoists. The peace agreement ushered the Maoists into the political mainstream and they won an election last year.

Hundreds of riot police in full battle gear guarded major road intersections across the Nepali capital on Monday but there was no obvious sign of unrest or street protests.

Maoist leaders said they would launch street protests against what they said was a power grab by the president.

Analysts said a new election was unlikely. Nepal’s other parties appeared to be readying for a new government, with or without the Maoists.

The main opposition party, the Nepali Congress, and moderate communist party the UML said they could both try to form a new government.

“We want a government of national consensus,” said Prakash Sharan Mahat, a Nepali Congress leader.

IMMENSE CHALLENGES

Some experts said Prachanda had pre-empted the inevitable end of his government by resigning.

Two government parliamentary allies withdrew from the ruling coalition to protest against the army chief’s dismissal, leaving the Maoists with a thin majority and possibly leading to a confidence vote in the government.

“He has resigned because the government was headed to become a minority,” said Lok Raj Baral, head of the Nepal Center for Strategic Studies think tank.

“Now the other political parties will be busy to form an alternative government. But it is too early to say anything definitive now.”

The challenges are immense. The Maoists came to power with huge expectations from voters won over by their promises of a “new Nepal” in one of the world’s poorest countries.

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But a crippling shortage of electricity and the highest inflation in a decade have hampered economic growth, forcing industries to cut production by about 60 percent.

The resignation is an about-turn for Prachanda, who scored a surprise win in a special assembly election last year but did not get a parliamentary majority. The assembly abolished Nepal’s 239-year-old monarchy and declared the nation a republic. Prachanda led an insurgency against the monarchy in the jungles around the Himalayan foothills.

Once he came out of the jungle, Prachanda transformed himself from a revolutionary insurgent into a wily politician, insisting that Maoists are not “dogmatic communists” and that globalization and free markets were facts of life.

Now any new government might face strong Maoist opposition.

“Any new government will be shackled by internal divisions and a lack of strategy to take the political process forward,” said Rhoderick Chalmers, Nepal head of the Brussels-based think-tank International Crisis Group.

“The Maoists have said they are still committed to the democratic process. But what we expect is that Maoists are going to use various tactics, including street protests, to bring pressure on the government.”