Leaders from the ruling seven-party coalition, including Prime Minister Girija Prasad Koirala, attended the talks, while the Maoists were represented by their second-in-command, Baburam Bhatterai.

Maoist spokesman Krishna Bahadur Mahara said the document could be finalised later Thursday but added the political parties "not us were taking their time over the document".

Senior government negotiator Pradeep Gyawali said talks Wednesday were "positive and sorted out differences that cropped up on some crucial issues, including who (was) to be made the head of state in the interim period".

But he did not divulge details.

The Maoists have said they want to strip King Gyanendra of his title and name a temporary head of state, such as Prime Minister Girija Prasad Koirala -- the respected octogenarian architect of last month's peace deal that officially ended a decade-long civil war.

Some members of the interim coalition, however, would prefer to see the position left open or the king -- who is still revered by many in the conservative nation as a Hindu deity -- retain a strictly ceremonial role.

"Unlike the previous constitution of 1990, the new interim constitution will not give any power to the king," said Maoist negotiating team member Dina Nath Sharma.

"There will be instead a provision that the future of the monarchy will be decided by the majority of the first constituent assembly," he added.

Under the terms of the peace deal, elections are to be held next June for the assembly that will permanently rewrite the constitution and decide whether to retain the 238-year-old monarchy.

The king, however, has already been stripped of most of his powers and has been tainted by allegations of abuse of power.

King Gyanendra and Queen Komal were heading south for the winter to escape the cold and what royal astrologers say is a bad spell for the palace, according to a news report Wednesday.

The monarch was also said to be under orders to keep a low profile.

Despite differences on who, if anyone, will be named Nepal's interim head of state, the seven-month-old peace process was making headway, rebel negotiator Sharma said Thursday.

"Though yesterday's meeting ended inconclusively, the talks are on track and today's meeting is likely (to) make a final decision on the contentious issues," said Gyawali, speaking for the government side.

Once foes, the rebels and parties in the coalition government formed a loose alliance late in 2005 and in April organised massive protests that forced the king to give up direct rule.

Under a landmark peace deal signed in November, the government has agreed to let the Maoists have 73 seats in a new 330-seat parliament in return for placing their arms and armies in camps under United Nations monitoring.

An initial batch of 35 monitors are slated to arrive within the next few weeks, but they will not be enough to supervise the tens of thousands of fighters the rebels claim to have.

The prime minister has said that the Maoists will only be included in an interim government after their arms are locked up under UN supervision.

Armed rebels still control large tracts of the countryside.

At least 12,500 people were killed during the rebel "people's war."