Saturday's decision to end the king's right of veto is the latest measure to reduce his authority after he was forced to end his absolute rule.
"This regulation has eliminated any and all authority the king had in parliament. From now on the parliament is independent to draft new laws and enforce them," said Subash Nemwang, the speaker for Nepal's parliament.
Members of parliament welcomed the decision.
"The concept of king in parliament has been abolished through law," said Ram Baran Yadav, a legislator of the Nepali Congress, the country's largest party.
"We are now free to criticize the king and the royal family members in Parliament," said Laxmi Shakya, an MP from the Communist Party of Nepal.
As well as losing his legislative veto, the king no longer has control of the 90,000 strong Nepal Army and cannot choose an heir to the throne.
King Gyanendra was forced to reinstate parliament in April after weeks of protests, organised by the political parties and Maoist rebels, against his absolute rule.
The political parties and Maoists have since observed a ceasefire and the government has met the Maoists' demand for elections to an assembly that will redraft Nepal's constitution.
The rebels want the government to move faster, including dissolving parliament and forming a new interim government that includes them.