KATHMANDU - IMPOVERISHED Nepal is set for more momentous change over the coming week as former Maoist rebels set about forming the newly republican nation's first post-royal government.

The ultra-leftists' leader, Prachanda, is expected to be made prime minister, taking over from the elderly, centrist politician Girija Prasad Koirala, who stepped down last week.

Mr Prachanda, whose nom-de-guerre means 'the fierce one' and who led a ten-year insurgency to overthrow the monarchy, is promising to bring sweeping change to the landlocked Himalayan nation.

'People have high hopes from us, and we have to try and fulfil their aspirations,' Mr Mahara said.

The group certainly has huge hurdles to surmount.

Already one of the poorest countries in the world and with an economy shattered by a decade of war, Nepal is being further hit by the global surge in fuel and food prices.

Last week the United Nations said rising prices had put 2.5 million people in Nepal in need of immediate food assistance and another 3.9 million at risk of becoming 'food insecure.'

The country has also been hit by a string of strikes after authorities were forced to raise state-set petrol, diesel and kerosene prices by up to 27 per cent.

Nepal is also blighted by corruption, a repressive caste system and a feudal land ownership structure.

On top of all these problems, the Maoists are still classed by the United States as a foreign terrorist organisation.

Political violence blamed on their youth wing, the Young Communist League, suggests the hardened jungle and mountain guerrillas have still yet to fully transform themselves into a democratic party.

They also need to sort out the future of 19,000 of their former fighters who are still languishing in UN-monitored camps as part of the country's 2006 peace deal.

'I'm very eager to see how the Maoists will perform in government,' said Mr Pukar Khadka, a 27-year-old airline employee in Kathmandu.

'The Maoists need to concentrate on people's basic needs. I hope they don't turn out to be like the older politicians who made all kinds of promises but never deliver.'

The centrist Nepali Congress party, which led the interim government that steered Nepal through the peace process, said its concern was that the former rebels would stick too closely to their revolutionary ideology.

'We need to keep a close eye on the Maoists to ensure they don't take any steps towards imposing a totalitarian government,' said Congress spokesman Arjun Narsingh Khatri Chettri.

Although the Maoists say they want to form a unity government under their leadership, Mr Koirala's Congress party said it would be staying in opposition.

'Given their rebel background, we will stay in opposition to maintain the balance of power,' Mr Chettri said.

A vote on the new government will take place in Nepal's new constitutional assembly, a 601-member body that was elected in April and voted on May 28 to sack unpopular king Gyanendra and dissolve his 240-year-old monarchy.

The Maoists hold 220 seats in the assembly, making them the largest single bloc but are short of holding an absolute majority - meaning they will have to work with other parties.

The assembly is tasked with rewriting the constitution, and will also function as a de facto parliament until that task is complete.

With Mr Prachanda expected to become prime minister, the post of president - more of a symbolic figurehead - is likely to go to a more moderate party or a prominent and neutral member of civil society.

The appointments and the formation of a government would end the weeks of political deadlock and the power vacuum that have followed the abolition of the monarchy.

'The political deadlock has been partially resolved with the resignation of the prime minister. We are looking forward to form the government over the next week,' said Maoist official Chandra Prakash Gajurel. -- AFP