Waving flags and banners, protesters marched through Janakpur, about 300km southeast of the capital, Kathmandu urging people to boycott next month's municipal elections in an effort to press King Gyanendra to relinquish his powers.
Madhav Nepal, the general secretary of the Communist Party of Nepal, told the cheering crowd: "Our goal is to foil government plans to hold the municipal elections and to break the backbone of the autocratic regime."
King Gyanendra sacked the previous government and took power on 1 February last year, arguing that previous administrations had failed to curb a growing Maoist
insurgency and clean up corruption. Violence by Maoist rebels, however, has continued.
There have been numerous protests since Gyanendra seized power and formed a royal government, but Thursday's rally in Janakpur was by far the biggest. Ram Krishna Yadav, a local leader of the Nepali Congress party, said more than 150,000 attended the rally. A police estimate was not available.
Amik Sherchan of the People Front, one of seven major political parties that organised the rally, said: "We urge the people to boycott the upcoming municipal election and help end attempts by the autocratic government to give itself legitimacy."
Government and police officials said they had instructions to search everyone entering the city and to step up security in Janakpur and surrounding areas.
Rally organisers alleged that government troops harassed participants and tore down posters.
Yadav, of the Nepali Congress party, said:
"The security forces along the highway are harassing the people who are heading for the rally. They were being forced to get out of the buses, stand in line and being checked for hours."
There have been many protests
against Gyanendra recently
Keshav Badal, of the Communist Party of Nepal, said policemen were tearing down posters and banners promoting the rally.
Meanwhile, the 17 policemen who were out of contact following clashes between security forces and Maoist rebels in the Dhangadi region have been accounted for, according to the Kathmandu Post newspaper.