India on Saturday welcomed the lifting of the three-month-old emergency in Nepal.
"The lifting of the emergency is a first step towards the beginning of a political process in that country," a Ministry of External Affairs spokesman said.
King Gyanendra imposed the emergency after the power grab on February 1.
Also see: King Gyanendra lifts emergency
"We call for the release of all political leaders still in custody and the restoration of civil liberties which open the way for reconciliation between the two constitutional forces," he added.
New Delhi had reacted sharply to the arrest of former Nepalese Prime Minister Sher Bahadur Deuba earlier this week, stating it was 'contrary' to the assurances given by the King to Prime Minister Dr Manmohan Singh in Jakarta last week on the sidelines of the Afro-Asian Summit.
The spokesman said it has been India's consistent view that multi-party democracy represented by political parties and the constitutional monarchy should work together to address the serious challenges facing Nepal today.
Nepalese leaders camping in India reacted cautiously to the decision. Shekhar Koirala of the Nepalese Congress said one has to 'wait and watch' as there was no word on ending restrictions like press censorship and resumption of mobile phone services.
Rajender Mahato of Nepali Sadbhavna Party termed the decision as 'meaningless' and a 'mere show' under international pressure.
Earlier reports:
King Gyanendra lifts emergency
Emergency imposed in Nepal
Sacked Nepal PM arrested for graft