Raju Mishra, 23, from Assam and Mohammad Farman Ali, 31, from Siliguri, West Bengal, were arrested on a tip-off, police said.
Police have also confiscated explosive substances including a pressure cooker and a socket bomb from a bus en route from Kakadbhitta to Kathmandu, in Dhading district, 70 kms west of Kathmandu.
The arrested have been handed over to the district police office, Dhading for further investigation.
The Indians were involved in transporting explosive materials into Kathmandu from India, police said.
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Others arrested were Kishan Shrestha, 41, and Keval Karki, 29, both residents of Dharan municipality in eastern Nepal along with various explosives, 15 bottles of narcotic drug dylex and Rs 1.13 lakh in cash, police said.
Meanwhile, an improvised explosive device (IED) went off in Kupondole of Lalitpur district near Kathmandu this evening. However, no casualty has been reported.
According to a senior police officer, unidentified persons detonated the bomb to terrorise people in the run up to the second phase of parliamentary and provincial elections slated for December 7.
On the same evening, an IED also exploded in Balkot in Bhaktapur but did not cause any casualty.
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