What now!?

nah, lever the pads away from the disc (the cyl assy should slide on the guidepins), so that you get a 2mm ish gap between the pads and disc, then pump the pedal to push the pads back towards the disc, the disc should spin fairly freely afterwards
 
Hmmm... Not exactly what I'd call free Frank... Not completely solid but by no means free compared to when pads are pulled away?
 
they will catch slightly, because disc brakes rely on the slight play in the bearing and disc runout to achieve clearance (tho many kart ones are mechanically retracted)
 
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