The attacker identified as Pawan Kunwar, a 25-year-old resident of Baglung district, slapped Prachanda after shaking hands with him and other Maoist leaders at the reception held in Kathmandu.
Eye witnesses said Prachanda's spectacles fell to the ground and there was confusion in the venue for close to 10 minutes after the incident.
The youth was who was apprehended and severely beaten up by Unified Communist Party of Nepal (Maoist) cadres was later handed over to security personnel present at the venue.
Prime Minister Baburam Bhattarai, many of his cabinet colleagues, leaders of political parties, representatives of diplomatic missions, civil society leaders and general public were present at the function.
Prachanda and Bhattarai have been busy trying to build consensus among parties on resolving the ongoing political crisis following dissolution of the Constituent Assembly.
Opposition parties have been demanding removal of the present government and installation of a national unity government comprising all parties as pre-condition for agreement on other issues.
On Friday Prachanda had resumed his efforts at consensus after the festive break by meeting Nepali Congress president Sushil Koirala and urging him to agree on passing the budget. Koirala rejected the request.
This is the third incident of major political leaders getting targeted. Jhalanath Khanal, chairman of Communist Party of Nepal (Unified Marxist Leninist) and Sushil Koirala have been at the receiving end of such attacks in the past.