The killing of Pokhara Mayor Harkha Bahsadur Gurung is one of the highest-profile assassinations since the Maoists launched their "people's war" in 1996 aimed at overthrowing the monarchy.

Three gunmen opened fire at the mayor, his driver and his bodyguard as they went on an early-morning drive through a crowded market area in Pokhara, a western town and gateway for trekkers in the Annapurna range.

"The mayor succumbed to his bullet injuries while underground treatment at the hospital," home ministry spokesman Gopendra Bahadur Pandey told AFP.

"The conditon of Gurung's bodyguard Karna Bahadur Gurung and his driver Prasad Gurung are reported to be serious," Pandey said.

He said three Maoists carried out the attack and fled after the shooting.