An agreement was expected to be signed at a meeting between Prime Minister Girija Prasad Koirala and rebel chief Prachanda, Maoist spokesman Krishna Bahadur Mahara said.

Senior leaders of the ruling seven-party alliance were also due to attend the meeting scheduled to begin at 4 p.m. (1015 GMT).

"We have almost reached an agreement on arms management and the monarchy," Mahara, who is also a rebel negotiator, told Reuters.

The Maoists and the government, formed soon after King Gyanendra handed power back to political parties in April, are observing a ceasefire and began peace talks in May.

But the process was dogged by the rebels' refusal to disarm their fighters before elections for a constituent assembly planned for 2007 to map out the country's future and decide the fate of the monarchy.

Mahara said the Maoists were now ready to lock up arms held by the 35,000-strong rebel army in temporary camps, where the fighters will also be stationed, under UN supervision.

"The key will remain with us," he said, adding that an equal number of arms held by the Nepali army would also be locked up separately.

"Mechanisms will be installed to send signals to UN monitors if the lock is opened or weapons are removed," said Ram Chandra Poudel, a leader of the Nepali Congress party, the biggest in the ruling coalition.

Sites for camps for the guerrillas would be identified soon and the UN would prepare a list of rebel arms, Poudel said.

Rebel spokesman Mahara said an agreement to keep the monarchy until next year's elections was also close. Rebels had been demanding the monarchy be immediately abolished or suspended, but have agreed it should remain until the assembly meets.