Mr. Nepal took charge in May 2009 after his predecessor Prachanda  (Pushpa Kumar Dahal), the CPN (Maoist) leader, resigned over a conflict with the president over the dismissal of the army's chief of staff following a dispute over the integration of the former Maoist rebels into the national army.
Anisha Bhattarai at New Beginning blog informs :
Prime Minister Madhav K Nepal resigned from his post yesterday. He and his government was the subject of controversy from the very beginning. He had lost in election from two places but still got to be the Prime Minister. [..]
Maoists have been demanding his resignation from the very beginning.
Mr. Nepal's resignation should end a political stalemate in the country which intensified after the coalition government failed to promulgate the new constitution by May 28, 2010 and extended the term  of the Constituent assembly by one year.
Gopal Sharma at Reuters Blog has some backgrounds  on the dispute:
Nepal currently has no parliament and a special constituent assembly elected in 2008 to draft a new constitution doubles as the national legislature.
No political party commands a majority in the assembly dominated by the Maoists. Any government’s primary responsibility is to oversee the drafting of the new constitution, the first after Nepal abolished the 239-year-old monarchy two years ago.
Neither the Maoists nor other political parties can garner the two-thirds majority in the assembly required to pass the statue without the support of each other. Therefore, every one talks about a national unity government – one based on the consensus and participation all or most of the 25 political parties, including the Maoists, to ensure the writing of the constitution by the stipulated time of May next year.
NepaleseAbroad.com is furious about this resignation :
Maoist wants the place and the Prime Minister-ship which they abandoned few months ago. This is complete childish behavior of the Maoists and their leaders. All moody politicians, talking and acting without any commitment or responsibility of the action and decision they make. Maoist should not be given any place in the government until they fully and completely abandon their camp and political army. [..]
Every political parties of Nepal individually or collectively, whether they be in the government or opposition, unless they make Nepal their first point of interest above their own individual or party’s interest there will be no stable government or development in Nepal.
Purushottam Shah (digitalsubway) tweets :
According to reports  the major political parties, namely, UCPN (Maoist), Nepali Congress and CPN (UML), have started talks to form a new government.