Krishna Sitaula, the interior minister, announced on Sunday that 12 ambassadors appointed by King Gyanendra have been recalled, including the representatives in the US, India, Japan, Britain and France.
The cabinet that was installed last week after mass protests forced the king to yield power and restore democracy on April 24 took the decision.
It said it intends to dismantle legislation, appointments, decrees and other actions taken after the king grabbed power in February 2005. It earlier scrapped municipal elections that were held three months ago.
Parliament has also promised elections for a constituent assembly that will rewrite the constitution.
That was a key demand of Maoist rebels who joined forces with a seven-party alliance to play a key role in the three weeks of often-bloody demonstrations.
The rebels appear to be headed for a role in the political mainstream and have agreed to hold peace talks with the government, and they are echoing public sentiments by calling for quick action.
A news report on Sunday quoted the rebels' leader, Prachanda, who goes by one name, as saying an interim constitution should be enacted immediately, before the special assembly is elected.
The parties represented in the government agree with the rebels that there should be elections for a constituent assembly but appear to have differences in how to do it.
The rebels want an interim constitution now, but the alliance is happy to make minor changes in the existing charter until a new one is written by the constituent assembly.
"We have not made any official decision on the issue, but we are in agreement that it would be fine just to remove some clauses from the existing constitution," said Gopal Man Singh, the minister for planning and works.
The rebels, who have waged a decade-long insurgency that has killed 13,000 people, have made it clear they have differences with the new government despite their partnership in bringing down the royal regime.