An envoy sent by UN Secretary General Ban Ki-moon to assess Nepal's fraying peace process has asked the coalition government to rehabilitate the guerrilla army of the Maoists and democratise the national army, warning that Nepal still had two armies though the communist uprising had ended four years ago.

'The question of the future of the two armies should not remain unresolved any longer,' said B. Lynn Pascoe, UN undersecretary-general for political affairs, in a statement issued by the UN Thursday.

'Unfortunately, Nepal today still has two armies, and no agreed strategy for what to do about this... We encourage leaders to engage in serious, good-faith discussions leading to agreements and actions.'

Pascoe, who arrived in Kathmandu on a three-day visit Wednesday, held talks with Prime Minister Madhav Kumar Nepal, Maoist chief Pushpa Kamal Dahal Prachanda and Girija Prasad Koirala, who heads the largest party in the government, the Nepali Congress.

He is also expected to inspect the cantonment in Shaktikhor in southern Nepal where part of the 19,600-strong Maoist army - the People's Liberation Army - has been confined since they ended their 10-year 'People's War' in 2006.

The peace pact signed by the ruling parties and the Maoists, which ended the insurrection, had agreed to induct the PLA combatants into the state army.

However, the merger is yet to take off due to opposition by senior army officials and now ruling party leaders who are accusing the Maoists of having inflated the strength of the PLA.

Pascoe said the integration and rehabilitation of the Maoist army personnel along with the democratisation of the Nepal army and the enforcement of a new constitution in May were the two major tasks before the government.

'The effective integration and rehabilitation of former combatants is one of the most important factors distinguishing those countries that successfully navigate these transitions to peace,' he said.

'Former combatants need to be afforded a real stake in the economic, political and institutional life of the country.'

The army, which had supported deposed king Gyanendra in seizing power in 2005 and was charged with gross violation of human rights, has refused to toe the line even after the fall of the royal regime and its pledge to obey the elected government.

Army personnel named in torture and extrajudicial killings have not been punished despite court orders for their arrest.

With the parties having failed 10 deadlines in the process of drafting the new constitution, Pascoe indicated the UN had realised that the May 28 deadline for the new constitution may also fail and recommended backup action in that case.

'We strongly encourage that every effort be made to accelerate progress in the days and weeks ahead,' he said.

'At the same time, inclusive discussions are needed to prepare carefully for the possibility that a final draft of the constitution will not be completed by the deadline.' The Maoists, who went to war demanding the new constitution, have warned of a new revolt if the ruling parties fail the May 28 deadline.

There is also mounting anger and frustration among civil society members at the delay and many constitutional experts have warned that a failure to meet the deadline would see chaos and violence.