King Gyanendra, who bowed to bloody street protests last week and handed power back to political parties, appointed the cabinet on Koirala's recommendation, a statement from the palace said.

"We believe this council of ministers will receive the cooperation of all in the discharge of its duty for the welfare and prosperity of Nepal and the Nepali people," the king said in the statement.

The cabinet formation was delayed amid reports in the local media that members of a seven-party alliance -- which led a mass campaign for democracy -- jostled for positions.

Ram Sharan Mahat, a liberal economist, was named finance minister and Khadga Prasad Oli was appointed deputy prime minister in charge of foreign affairs in the new cabinet.

Koirala, who was sworn in on Sunday, kept the key post of defence and more than a dozen ministries to himself.

Tuesday's announcement came two days after Nepal's parliament unanimously approved a proposal by the new prime minister to hold elections for a special assembly to write a new constitution to decide the future of the monarchy.

No date has been fixed for the vote.

The cabinet, which is an interim arrangement, faces the difficult task of holding talks with the Maoist rebels, win their backing for the election to the assembly and reverse laws introduced by the king to maintain his grip on power.

The king appointed Koirala as prime minister last week on the recommendation of the seven parties that launched weeks of anti-king protests in which at least 15 people were killed and thousands wounded.

The Maoists, who have been pressing for the assembly, have not reacted to parliament's proposal for the vote. But a senior rebel leader called it positive.

"We have taken this positively," Sunil, a rebel leader who goes by one name, told Reuters.

"But it is not complete. There can be a conspiracy against the people," he said without elaborating.