The controversy has now become a prestige issue between the two, as the country's ex-guerrilla prime minister and its army chief engage in hand-to-hand fighting.
"The trigger was the national games. The PM was personally furious at Katawal's defiance," a senior Maoist leader told Nepali Times on Wednesday. "We have logic and the law on our side, and have been preparing to do this for two weeks."
But non-Maoists, even those who believe in civilian supremacy, feel the Maoists are bent on a strategy to take over total state control. Katawal's dismissal would pave the way for a more pliable chain of command dependent on Maoist patronage, while also enhancing Dahal's popularity within the party.
However, it hasn't quite gone according to the script because of escalating divisions within the UML. Dahal is learnt to have secured UML chairman Jhalanath Khanal's assent before his departure to China, but after cutting short his visit Khanal and returning Thursday Khanal had changed his tune.
President Ram Baran Yadav's stern advice to Dahal to work for political consensus played a part in the Maoists taking a step back. Yadav is said to have warned of the consequences if an ethnic candidate for the chief's position is bypassed. General Chhatraman Singh Gurung would head the army if Katawal retires on schedule in September. If he is sacked, General Kul Bahadur Khadka, who is understood to be lobbying hard for the job, would take over.
As expected, there was pressure from India to leave the army alone. Delhi had assured the army that its chain of command, structure and interests would be protected in return for support during the peace process in the last three years. It sees the institution as the last bulwark against the Maoists, and sent word to Dahal there would be costs if he went ahead.
But the game is not over yet. "If the prime minister pulls back now, he can play the victim card temporarily but his credibility within the party would be dented and the cadre will be demoralised," a Maoist secretariat member admitted.
Dahal will now have to find a face-saving way to appease his cadre, assuage nervous political parties and wary internationals. On Thursday, the prime minister met UNMIN chief Karin Landgren and later summoned a group of ambassadors from India, UK, US and China and told them he was looking for a "third option". The envoys reportedly only listened, and didn't ask any questions.
The row doesn't bode well for the constitution-writing and the peace process, deepening mistrust between political