Nepal police Tuesday demolished the largest remaining settlement of people displaced by a powerful earthquake that struck nearly two years ago, a move that will leave hundreds homeless.

Around 100 families were still living in the camp in Kathmandu when police wearing riot gear used bulldozers to flatten the bamboo and tarpaulin structures.

"The gods will curse the government. We don't have our home and can't rent a room from our earnings in Kathmandu," said Kabita Limbu, tears rolling down her face.

Limbu's husband fainted when their tent was destroyed before the couple were able to retrieve their processions.

Apsana Tamang, 19, was breastfeeding her one year-old baby in her makeshift home when the authorities arrived early morning.

"I have nowhere to live as my parents' house in Kavre district was also damaged in the earthquake," said Tamang, who was pregnant when the 7.8 magnitude earthquake hit Nepal killing more than 9,000 people.

"We have received nothing from the government or other organisations except food and tarpaulins."

About 2,000 people lived in the camp at its peak, but many had left in recent weeks after authorities gave residents a one month eviction notice.

Despite the prior warning, residents were taken by surprise and rushed to gather their belongings from their homes as the bulldozers moved in.

The government has faced mounting criticism for the slow pace of reconstruction following the earthquake, which destroyed more than one million homes.

International donors pledged $4.1 billion after the earthquake -- the strongest to hit the impoverished Himalayan nation in 80 years.

But political wrangling over control of the funds and formation of the government body to oversee the reconstruction effort meant the first instalments of a housing grant were only paid out in March 2016.

The National Reconstruction Authority (NRA) has now distributed the first 50,000 rupees ($460) of a promised 300,000-rupee grant to around 550,000 households.

The head of the NRA Govind Raj Pokharel told AFP he had forwarded a proposal to the government to provide an extra 200,000 rupee grant to families who now needed to be relocated from the camp.

But he acknowledged that the extra cash was not a panacea.

"The main problem is there are limited options (to earn a) livelihood for the earthquake victims in their villages so they don't want to return to their village," Pokharel said.

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