James Moriarty, whose three-year tenure in the Himalayan nation ends this week, also said the former rebels will remain featured on the United States' list of foreign "terrorist" organisations unless they change their ways.

"They continue to use violence and continue to threaten the (peace) process itself if they don't get everything they want," Moriarty told reporters.

"Everything that they want is power, absolute power, not part of a multi-party democracy," said the diplomat, a long-term critic of the Maoists.

The ultra-leftist Maoists officially ended a decade-long "people's war" last November and earlier this year they were also given seats in an interim parliament and cabinet.

Under the peace deal, they have confined their fighters and weapons to UN-monitored camps.

But the ex-rebels continue to face allegations of using mafia-like tactics, including beatings, kidnappings and extortion.

"There is no commitment on the part of the Maoists to give up violence, but if they make that commitment and begin to implement it then, sure, we are going to consider taking them off the terrorist list," the ambassador said, in an apparent concession to the former rebels.

But he also alleged that the Maoists were grappling with an internal dispute over how to proceed politically.

Maoist leader Prachanda and his second in command Baburam Bhatterai advocate staying within the political mainstream to "force the government into a rolling series of concessions that ultimately result in them grabbing full power," Moriarty said.

The other faction within the group, led by Maoist military commanders, believes that "there has got to be confrontation and its got to happen now when the Maoists are relatively strong."