Nepal's government has agreed to dissolve parliament and set up an interim administration to include Maoist rebels after a day of top-level peace talks in the capital, the two sides say.
Rebel chief Prachanda said the Maoists would also dissolve their parallel governments around the countryside.
"We will dissolve the old parliament, we will dissolve our governments, this is the main spirit of the decision taken in today's meeting," Prachanda said on Friday after nearly 10 hours of talks with Girija Prasad Koirala, the prime minister, and top political party leaders.
"A new interim constitution will be prepared within three weeks and after that the new interim government will be formed," he said.
Prachanda was speaking at a joint news conference with leaders of some of Nepal's seven main political parties.
The reclusive rebel leader, who flew to the capital in a private helicopter from western Nepal, was making his first known visit to Kathmandu since launching an insurgency in 1996.
The talks were aimed at ironing out differences between the two sides before landmark elections are held for a special assembly meant to draft a new constitution and review the role of the king.
The two leaders, assisted by their negotiators, talked for two hours before leaders of Nepal's six other main political parties joined them at the prime minister's high-security official residence.
King Gyanendra surrendered
power in April after protests
Nepal's peace process burst into life after King Gyanendra surrendered power in April following weeks of street protests and reinstated parliament.
Since then, Koirala's multi-party government has agreed to a ceasefire with the rebels, stripped the king of almost all of his powers and agreed to the Maoist demand for elections to draft a new constitution.
The Maoist insurgency has left at least 13,000 people dead and badly hurt the aid and tourism-dependent economy of the Himalayan nation, one of the world's 10 poorest.
It has also forced tens of thousands of people to flee the violence in the countryside and take refuge in the cities or in neighbouring India.