"We are not reviving parallel government structures. These are baseless allegations," Maoist spokesman and communications minister Krishna Bahadur Mahara told AFP.
But the Maoists insist that expanding their local councils is not a violation of the peace deal.
"We are expanding our United Revolutionary People's Council (URPC) to prepare for the holding of the upcoming constituent assembly elections," said Mahara, referring to crucial polls planned for April that will decide Nepal's political future.
The Nepali Congress, the country's largest party which is headed by the prime minister, said it was "deeply concerned" at the planned expansion of the local Maoist councils.
"The one-sided decision by the Maoists to revive the URPC violates the comprehensive peace agreement and other deals reached with the government," the Nepali Congress said in a statement.
Correspondents say that during the course of his interview with the paper, Yomiuri Shimbun, the king appeared to criticise the Maoist party. He said some party leaders had tried to take action that was against Nepal's traditional values. The Maoists have consistently called for the abolition of the monarchy in Nepal, which was one of their central demands while fighting a 10-year civil war which ended in 2006.
'Great meaning'
The king reportedly said the decision to abolish the monarchy "doesn't reflect the majority view of the people". "This isn't democracy," he was quoted as saying. "Some leaders have tried to take action that's against cultural, social and traditional values. "A majority of the people find great meaning in the institution of the monarchy.
"In all clouds, there is a silver lining. Let us hope," he said.
The Maoists have been accused of reneging on their promises But the king was also reported by the Japanese newspaper as conceding that the Nepalese people do have the right to choose the fate of monarchy. "The Nepali people themselves should speak out on where the nation is heading, on the direction it is taking and on why it is becoming chaotic," he said. A parliamentary vote in December determined that the country will be declared a republic in April, formally ending nearly 250 years of dynastic rule.
The current ruling dynasty in Nepal dates back to 1769. It was rocked in June 2001 when the then Crown Prince Dipendra shot dead his parents, King Birendra and Queen Aishwarya, and seven other members of the royal family before killing himself. This brought to the throne Gyanendra, the former king's brother.
Nepal police raid Maoist offices
Police in Nepal's capital staged raids overnight on the headquarters and four branch offices of the controversial youth wing of the country's former rebel Maoists, officials said Thursday.
Senior police official Sarbendra Khanal told AFP that the group was suspected of "holding people illegally and having weapons in their offices," in violation of the Himalayan nation's 2006 peace deal.
"We did not make any arrests, nor find any weapons," said Khanal, adding that the police deployed more than 300 officers to raid the Young Communist League (YCL) headquarters and four Kathmandu branch offices.
Since its formation after a 2006 peace deal between the former rebel Maoists and the government, the YCL has been accused of abductions, assault and extortion.
A YCL leader warned police against future action. "We are being as patient as we can but we won't put up with this kind of police activity," said Sagar, a Maoist youth leader in Kathmandu who only uses one name. "This kind of action is very harmful for the peace process."
Small groups of YCL activists protested Wednesday night, burning tyres and chanting slogans against the police, Sagar said.
The Maoists -- hardened guerrillas who controlled large swathes of Nepal's countryside -- have been given positions in an interim government, and their army has been contained in United Nation's monitored camps. The YCL claims to have 900,000 members nationwide.
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