Nepalese President Ram Baran Yadav on Sunday asked the country's constituent assembly to make efforts to form a new government, the dpa reported.
The presidential orders came after the Maoists missed a deadline given to them to form a government by Saturday.
The president asked the assembly to elect a prime minister on the basis of majority who in turn will form a new government.
The new development means that any party that can muster the support of majority of the members in the 601-member assembly, can stake its claim to form the government.
No party has a clear majority in Nepal's constituent assembly which was elected in April. The Maoists with 210 members form the single largest party.
On Friday, the Maoists gave up their attempts to form a government after differences with Nepali Congress and Communist Party of Nepal - Unified Marxist Leninist over key ministries.
The Nepali Congress claimed the defence ministry, saying it was needed to maintain balance of power. The demand was rejected by the Maoists.
Nepal's main political parties continued discussions to gather support to form a new government. But it remained unclear which party would secure the majority.
The Maoists warned of new protests if they are prevented from leading the new government.
Nepal has been without an effective government since the April election. Girija Prasad Koirala remains in the post of prime minister in a caretaker capacity, two months after announcing his resignation.