Nepalese guides on Mount Everest have decided to abandon this year's climbing season, to honour 16 colleagues killed in an avalanche last week.

The decision throws the plans of hundreds of foreign mountaineers into chaos, with many of them waiting in base camp after paying tens of thousands of dollars to scale the world's highest peak.

The Sherpas perform essential tasks on the 8,848-metre (29,029ft) mountain, carrying equipment and food, as well as repairing ladders and fixing ropes to reduce risks for their clients.

"We had a long meeting this afternoon and we decided to stop our climbing this year to honour our fallen brothers. All Sherpas are united in this," one local guide, Tulsi Gurung, told AFP from base camp.

"Some guides have already left and others will take about a week to pack up everything and go," said Gurung, whose brother is among those missing after an avalanche last Friday killed 13 Sherpas and left three missing, presumed dead.

Another guide, Pasang Sherpa, said: "Sixteen people have died on this mountain on the first day of our climb. How can we step on it now?"

The guides had threatened to cancel all climbing on Mount Everest, and issued an ultimatum to the government demanding higher compensation, an agreement to revise insurance payments and a welfare fund by next Monday.

Maddhu Sudan Burlakoti, the head of the Nepalese government's mountaineering department, said all of the demands would be discussed and a recommendation made to the government. The decision to abandon the season appeared to pre-empt the outcome of the talks.

High-profile western mountaineers headed to the capital, Kathmandu, on Tuesday afternoon to seek a resolution to the crisis.

"They have decided that compensation is not the only issue, they feel like they have to close down Everest this year as a memorial to those who died," said Ed Marzec, an American climber who spoke to AFP from base camp. "They also want to stage a protest next month in Kathmandu and they say they can't do that if they are on the mountain."

Marzec, a 67-year-old retired lawyer who hoped to become the oldest American to climb Everest, said the atmosphere at base camp was souring fast, with some climbers putting pressure on Sherpas so they would stay on and help them reach the summit.

Since Friday's avalanche, expedition teams have declared a week of mourning with no trips to the summit. Ang Tshering, of the Nepal Mountaineering Association, said about 400 foreign climbers from 39 expedition teams were on the mountain with an equal number of Sherpa guides, along with support staff such as cooks, cleaners and porters in the base camp.

If the Sherpas boycott the season, many of the climbers would have to forfeit most or all of the money they have spent to climb Everest, which can amount to $90,000 (£53,000).

Those climbing Everest have long relied on Sherpas for everything from hauling gear to cooking food to high-altitude guiding. Some guides had already left the mountain by Monday, either joining the boycott or mourning their friends and colleagues.

The avalanche caused the most deadly recorded climbing accident in Everest history. At least 13 Sherpas were killed when a block of ice tore loose from the mountain and triggered a cascade that ripped through teams of guides hauling gear.

Three Sherpas missing in Friday's avalanche are presumed dead. Authorities say it is unlikely that their bodies – believed to be covered in snow and ice – will be recovered.

The Sherpas want the minimum insurance payment for those killed on Everest to be doubled to 2m rupees (£12,370), and a portion of the climbing fee charged by the government to be reserved for a relief fund. The government has agreed so far to just one demand – building a monument in Kathmandu in memory of those killed.

Pasang Sherpa, of the National Mountain Guides Association, said his group had signatures from more than 350 Sherpas from the base camp. "They all support the demands, and work will not continue unless the government agrees to our demands. When the avalanche hit and rescue help was needed, there was little support from the government available at the base camp."

Hundreds of people, both foreigners and Sherpas, have died trying to reach the summit, and about a quarter of the deaths occurred in avalanches, climbing officials say. The previous worst disaster on Everest was the deaths of eight climbers in a fierce blizzard on 11 May 1996. That expedition was memorialised in the book Into Thin Air by Jon Krakauer.

More than 4,000 climbers have reached the summit of Everest since 1953, when the New Zealander Edmund Hillary and the Sherpa mountaineer Tenzing Norgay became the first to achieve the feat.