"The king is down but not out. He has all the privileges, he has all the money, billions of dollars... The army is still loyal to him," Baburam Bhatterai said in an interview on Tuesday.
"There is tremendous pressure from the masses of the people not to lay down the arms until and unless the feudal system and the monarchy is abolished," King Gyanendra was forced to end 14-months of direct rule in April after three weeks of pro-democracy protests led by political parties and the rebels.
Since restoring parliament in April, the new government has stripped the king of most of his powers, including his status as supreme army commander.
Massive restructuring of the former Royal Nepal Army, a 90,000-strong force traditionally loyal to the monarch, is essential, Bhatterai said.
"The main institution buttressing and supporting the monarchy is the royal army. It is still feudalistic, and it is still loyal to the monarchy and against democracy," said the former civil engineer turned revolutionary.
The Maoists have proposed three options on the future of the monarchy. The first is for the impoverished Himalayan nation to be immediately declared a republic, and the second option is a referendum on the 238-year-old monarchy.
If neither of these two options are enacted, the rebels will refuse to join the interim government, but would support the holding of elections to a body that will rewrite Nepal's constitution permanently, a key rebel demand.
"If you don't nationalise his property and if you don't restructure the army, he won't be finished. Money and guns are the main means of his power," Bhatterai said.
In June, the government agreed to let the rebels join an interim government, but differences over arms management and the role of the monarchy have delayed the power-sharing deal.
Sunday saw a fresh round of high-level peace talks end in Kathmandu with no conclusion, and no date set for the next round, aimed at ending the insurgency that has killed at least 12,500 people since 1996.
Some in the ruling multi-party alliance, including Prime Minister Girija Prasad Koirala, want to see the sidelined monarch retain a ceremonial role, but this is unacceptable to the rebels, the leader said.
"We can't accept monarchy. We won't accept the status quo. We want change, people want change," said Bhatterai, who was speaking in a hotel in Bhaktapur, a town 15 kilometres (nine miles) from the capital.
The rebels, who control large swathes of the countryside, have said that they are prepared to confine their soldiers and weapons to camps supervised by the United Nations, but the government wants them to disarm.
Despite the differences, Bhatterai said he was not pessimistic over the chances for an accord.
"People are running out of patience, but we are still hopeful we can find a way out through negotiations," Bhatterai said.

Copyright AFP (Agence France-Presse), 2006