Sherchan also claimed that he had repeatedly asked the royal family to invest part of their money in Nepal. But they refused and even jailed him for 38 months, 'compelling' him to plot the murder.
The claim was greeted by stunned disbelief and even derision.
Nepal's major media ignored the claim while the lightweights poked fun at Sherchan, calling his claim an elaborate April Fool joke.
Royalists remained tightlipped, saying they had not heard of anyone called Tul Prasad Sherchan.
Only the Maoists, who have threatened to block parliament from Friday demanding the current government's ouster, reported the incident gleefully, linking it with deposed king Gyanendra's likely visit to India in December.
Since the palace massacre June 1, 2001, Birendra's younger brother Gyanendra, who ascended the throne, became unpopular from the very start of his reign due to prevailing suspicion that he had a hand in the tragedy, an allegation that he denied forcefully when he was stripped of his crown last year and compelled to leave the palace.
With the ousted king expected to visit India in December to attend family weddings, the Maoist mouthpiece Janadisha daily Thursday said Sherchan's admission taking blame for the killings was `significant'.