Nepalese Prime Minister Lokendra Bahadur Chand on Friday resigned amid joint agitation by major political parties demanding formation of an all-party government.
King Gyanendra has accepted Chand's resignation.
A palace statement said the king has already started consultations for the formation of a new council of ministers. Chand has been asked to continue as caretaker prime minister till a new government is formed.
King Gyanendra appointed Chand as prime minister on October 11 last year, a week after he dismissed the elected government led by Sher Bahadur Deuba of the Nepali Congress. The king took the step after Deuba had recommended to him the postponement of general elections on security grounds.
Deuba had dissolved the House of Representatives on May 22, 2002 following differences with Nepali Congress president Girija Prasad Koirala regarding the extension of emergency rule.
Major political parties have been agitating against the royal takeover and demanding formation of an all-party government with full executive powers.