Prime Minister Girija Prasad Koirala and Maoist rebel chief Prachanda are to hold the talks Thursday in the capital of the Himalayan kingdom racked by a decade of Maoist insurgency, officials said.

The government said it was determined to iron out its differences with the rebels.

"The top leaders of the seven parties decided at a meeting Monday to reach an agreement with the Maoists on key political issues during the upcoming higher-level talks," Home Minister Krishna Prasad Sitaula told AFP.

"We're optimistic we'll reach an agreement on the issues regarding formation of an interim government," said Maoist leader Dinanath Sharma.

Koirala and Prachanda have held just one formal meeting since mass protests in April forced King Gyanendra to give up absolute rule and restore parliament.

At that meeting in June, it was announced that the seven-party interim government would be scrapped and a new one formed to include the rebels.

But disagreements over the contents of an interim constitution meant to pave the way for the interim government have stalled its formation.

Koirala and Prachanda held what were billed as informal discussions earlier in September in a bid to jumpstart the peace talks that the government said had been "crucial in developing mutual trust" between the two sides.