Prime Minister Prayut Chan-o-cha has asked state agencies to help come up with a solution to the judicial housing controversy, as legal experts agreed that demolishing the houses would be against the law.

Gen Prayut admitted during a reform steering committee meeting on Monday that the housing controversy was a serious issue for him.

"Although the project did not break the law, the sentiment of local people must be taken into account," he said.

The premier faces pressure from Chiang Mai locals who rallied outside provincial government offices on Sunday to demand that the houses built at the foot of Doi Suthep be torn down. They gave Gen Prayut a week to meet their demands.

The housing project was reported to be sitting on a deteriorated forest, which allowed for the housing development to take place. However, environmentalists argued the forest should be restored.

The Sunday rally leaders said Doi Suthep was a focal point of the Chiang Mai people's faith where Buddhist relics are kept and religious ceremonies are held.

Gen Prayut told Monday's reform meeting attended by officials of related state agencies that he wanted their input to help resolve the issue.

Maj Gen Piyapong Klinpan, a member of the government spokesman team, said Gen Prayut has ordered a panel be formed to study the best way forward.

Deputy Prime Minister Wissanu Krea-ngam, who is also a prominent legal expert, reiterated that the prime minister had no wish to exercise his Section 44 powers to end the dispute.

Mr Wissanu warned that demolishing the houses would violate the law as they were built using more than a billion baht of state money, which was legally approved.

However, judges and judicial officers have said they had no problem moving the project elsewhere, if it would help end the dispute. The final decision now rests with the government, he said.

Teerasak Rupsuwan, coordinator of the network to reclaim the Doi Suthep forest, said the Sunday rally had drawn people from all walks of life and raised public awareness about the matter.

He said if the government does not make a decision within the week, he believed more people would come out in opposition.

"The houses and offices must go. Nothing more, nothing less," he insisted.

The anti-judicial housing network could intensify efforts at the next rally next Sunday, if the government does not respond favourably to its demand.

National police chief Chakthip Chaijinda said he has not ordered any special measures to be taken to deal with the protests.