Normally congested roads into the ancient, temple-studded city of about 1.5 million people were mostly empty on Wednesday. But the capital's airport was functioning normally and residents and tourists were moving around the city.
"No vehicle owners are prepared to put their vehicles into service because of fears of being attacked by the Maoists," said Hira Udas, chief of the Nepal Transport Entrepreneurs Federation.
"Security forces may protect vehicles for one or two days but after some time the Maoists take punitive action for defying their orders."
The Maoists, who have been fighting to overthrow the constitutional monarchy and install a communist republic, said they would keep up the blockade of the hill-ringed city indefinitely until their demands were met.
The blockade is viewed as a show
of the Maoists' growing strength
"We are going to impose an effective blockade from today [Wednesday] that will continue indefinitely," district Maoist leader Subash Tang said in a statement to local media.
Army vehicles escorted 28 passenger and goods vehicles from Kathmandu to the southern border area near India and would follow them back to the city with provisions, said an army official.
The blockade was seen by analysts as a show of strength by the rebels, who have become increasingly bold in attacking the capital. On Monday they bombed a luxury hotel in the city but caused no injuries.
The rebels already control vast areas of countryside in the deeply poor country sandwiched between India and China.
Prime Minister Sher Bahadur Deuba met the National Security Council, police and army officials to discuss how to break the blockade.
The Maoists are seeking the release of jailed colleagues, details of whereabouts of missing activists and a probe into alleged custodial killings of rebels by security forces. They also want the government to stop calling them terrorists.
Peace talks fell apart last August after the government rejected a rebel call for an assembly to draft a new constitution and decide the monarch's fate.
The government has said it is ready to "initiate dialogue" with the Maoists to end the revolt that has claimed nearly 10,000 lives since 1996, and has promised maximum flexibility.