"If the government does not ban the MJF (Mahadhesi People's Rights Forum) and take action against its leaders we will be compelled to start retaliatory action," Maoist number two Baburam Bhatterai told thousands of supporters.

Maoist leader Prachanda placed orange flower garlands and draped communist flags on the stinking corpses in an open air theatre in the heart of Kathmandu after the bodies were airlifted from southern Nepal.

The leftists were apparently killed by ethnic activists in clashes Wednesday that have cast a cloud over the nation's peace deal, which officially brought an end to ten years of civil war between Maoist rebels and the government.

"We have not lost our patience at this critical moment, but if the government stays quiet on this matter it will have to bear the responsibility of the consequences," Bhatterai told the crowd.

Following the mourning rally, the former rebels led a silent procession through Kathmandu to take some of the victims for cremation at Pashupatinath temple, and others for funerals in the capital's main mosque.

At least 29 people were killed and dozens injured in the violence in the town of Gaur, situated 90 kilometres (57 miles) south of Kathmandu and near the border with India.

Journalists and human rights workers said local residents told them of horrific scenes earlier this week of rape, burnings and stabbings during what the local media has dubbed a "bloodbath."