Analysts said the unpopular king is running out of options and his days may be numbered.
The government said Wednesday's local elections for mayors and other minor officials were part of moves to put Nepal back on the road to democracy after Gyanendra sacked the government and took control a year ago.
But only 20% of voters turned out, compared with more than 60% last time such polls were held
Analysts have called the poor turnout a resounding rejection in what was effectively a mini-referendum on royal rule.
The government blamed a boycott by political parties and threats by Maoist rebels.
Lok Raj Baral, political lecturer at the Tribhuvan University, said on Thursday: "It has further deepened the crisis for the king.
"He has reached the point of no return. It helped further polarise political forces into monarchist and anti-monarchist. The king is alone. He is totally isolated internally and internationally."
The killing by soldiers of an anti-poll protester during the vote sparked protests in Kathmandu, with police firing teargas in one violent clash with brick-throwing youths on Thursday.
Later, 3000 protesters marched through residential streets demanding the release of the activist's body from a hospital morgue.
Diplomats fear that the political crisis and a 10-year Maoist revolt could spiral out of control and the country, sandwiched between India and China, could become a haven for international militant groups.
Washington described the polls as a "hollow attempt" by the monarch to legitimise his rule.
India's ministry of foreign affairs called for a "genuine process of national reconciliation" to tackle Nepal's "grave challenges".
Minendra Rijal, a leader of the Nepali Congress Party (Democratic) said of the elections: "This was basically a ploy to sell to the international community that he is interested in democracy, which he is not."
Rijal is one of dozens of politicians evading detention.
The United Nations estimates that Nepal has at least 800 political prisoners.
The opposition leader said the seven main parties will step up protests to force the king to talk to them and bring the Maoists into the political process.
"The king is alone. He is totally isolated internally and internationally"
Lok Raj Baral, political lecturer at the Tribhuvan University
No international support
So far the parties, themselves unpopular after years of turbulent and volatile misrule, have been unable to ignite a large-scale people's movement against the palace.
Foreign donors critical to Nepal have pressed the king to talk to the parties, but the parites have refused to strike any deal that does not involve the Maoists.
Gyanendra claimed that his seizure of total power last year was necessary to end the Maoist rebellion, which has killed more than 13,000 people and enters its eleventh year next week.
But there has been no significant progress towards peace.
The protesters demanding the release of the dead activist's body said they planned to continue their campaign and push for democracy.
As counting continued for the municipal polls, the election commission said royalist candidates had won 13 of the 36 mayoral jobs up for grabs and independents seven.