In his TV address, Prachanda said he was stepping down "for the protection of democracy and peace" in Nepal.
"The move by the president is an attack on this infant democracy and the peace process."
"The interim constitution does not give any right to the president to act as a parallel power," he said.
Prachanda accused President Ram Baran Yadav of taking an "unconstitutional and undemocratic decision" by overturning his efforts to get rid of Gen Katawal.
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