Raising the stakes, Maoists have called for a general strike to protest against the king's power grab, but the call was only partially observed in the Himalayan kingdom's capital Kathmandu.
A state of emergency has been declared, politicians placed under house arrest or thrown in jail, and the press strictly censored in one of the world's poorest and most troubled nations.
On Thursday, state radio announced that all news against the royal proclamation of emergency and sacking of the government was banned for six months.
King Gyanendra has appointed a 10-man cabinet of loyalists under his chairmanship, and the new government said its first priority was to establish peace.
Politicians in Nepal have been
placed under house arrest
"To establish peace, we are considering how to go forward with the peace process and the dialogue with the Maoists," Education Minister Radha Krishna Mainali said.
"Will they come to talks or not? If they do, we can move forward in a certain way, and if they don't, we have to make another choice."
Home Minister Dan Bahadur Shahi added: "If the Maoists do not come forward, we may have to think of alternative steps," not elaborating.
Seeking communist republic
Maoist rebels have been fighting since 1996 to topple the monarchy and establish a Communist republic, based on the teachings of China's communist patriarch Mao Zedong.
The rebels have long insisted they would rather deal directly with the king or his direct representatives rather than with a puppet government.
But they too have moved swiftly to condemn his latest move as smacking of "mediaeval feudal autocracy".
On Wednesday, Maoists tried to spread word about their strike call, despite the lack of media freedom or phone lines.
Their efforts appeared less successful than in the past, when they have often paralysed life in the capital simply by issuing threatening statements.
Aljazeera.net learnt a group of Nepalese students in Germany arranged a meeting on Tuesday to discuss the situation in Nepal. The student group demanded the reactivation of human rights and political rights of Nepalese people, and the release of arrested political leaders.
Uniting against king
Former prime minister and leader of the Nepali Congress party, Girija Prasad Koirala, called for political parties to unite against the king.
"I appeal to all democratic forces to join hands and move ahead collectively against the royal coup d'etat in order to restore the sovereignty of the people"
Girija Prasad Koirala, Nepal Congress party
"In this grave political situation... I appeal to all democratic forces to join hands and move ahead collectively against the royal coup d'etat in order to restore the sovereignty of the people," he said in a statement smuggled out from house arrest.
Nepal continues to be locked in a three-way struggle between the king, the rebels and political parties which are often bitterly divided themselves.
The country has now had more than a dozen leaders since democracy was restored in 1990.
Gyanendra's decision to sack the government on Tuesday attracted condemnation from India, the US and the United Nations, which warned it could play into the rebels' hands.