Kathmandu  - Nepal's Maoist-led government on Tuesday suffered a serious setback after the Nepalese Supreme Court reinstated eight army generals who had been forced into retirement.

The eight brigadier generals were forced into retirement after the defence ministry led by a former Maoist rebel leader Ram Bahadur Thapa ignored the recommendation of the army headquarters to extend their terms by another three years.

"The government's decision not to renew the terms of the generals does not have valid reasons and orders the government not to implement its decision," the court said.

The court also asked the government to furnish reasons, if any, for its decision and said further action would be dependent on the reply.

The court hearing followed challenges by the eight generals who said the decision violated army regulations.

"We are happy with the court's decision and paves the way for the government to act in line with the existing regulations in any such cases in the future," said Narendra Bahadur Rawal, one of the generals whose term was not extended.

Under the regulation, the terms of generals is first extended by three years and for another two years after that. It is always carried out on the recommendation of the army headquarters.

The decision to force eight generals into retirement came after months of cooling relations between the army and the Maoist-led government.

The standoff between the two sides erupted after the army recruited nearly 3,000 new soldiers earlier this year to fill positions that fell vacant due to retirements and deaths.

The move was strongly opposed the Maoists who described it as a violation of the peace agreement that ended the communist insurgency.

Defence Minister Ram Bahadur Thapa even ordered the army to stop the recruitment, but it was rejected on grounds that it was necessary to maintain the army's strength.

The government decision came under criticism from its own coalition partners and the opposition Nepali Congress.

Nepal's army led the fight against the Maoist rebels during the decade long insurgency that killed nearly 14,000 people. (dpa)