"All the privileges enjoyed by the king and royal family will automatically come to an end," the declarations says, noting that May 29 will from now on be celebrated as "Republic Day".
Near the convention centre in the capital where the assembly met, thousands of demonstrators gathered, some chanting "Long live the republic".
While the celebrations were largely joyous and peaceful, police at one point used tear gas to disperse a crowd that gathered too close to the building.
Two small explosions hit Kathmandu on Wednesday and several other small-scale bombings have occurred over the past three days, as tensions mounted ahead of the vote.
The political parties had long made it clear that their first act would be to declare Nepal a republic and do away with the 239-year-old dynasty.
The Maoist group, which won the largest single bloc of seats in the assembly in elections in April, fought for 10 years to oust King Gyanendra and create a republic.
End of the monarchy
"We have a big responsibility now," Girija Prasad Koirala, Nepal's prime minister, said in a short address ahead of the vote to abolish the monarchy.
"We have come a long way, crossing lots of obstacles and hurdles to enter a new era. Our dream has come true, I think the nation's dream has come true," he said.
King Gyanendra has been generally unpopular with Nepal's public.
Already his face has been erased from Nepal's currency, and all his state allowances and benefits will be stopped from Wednesday.
"There is a sense of jubilation ... it's a very exciting moment for Nepal," Subina Shrestha, reporting for Al Jazeera from Kathmandu, said.
"From now on the monarchy are going to be normal citizens in Nepal."
Gyanendra has made no comment as to his plans.
Kanak Dixit, editor of Himal magazine, told Al Jazeera: The king of Nepal and his family are now commoners and citizens.
Prachanda is in all probability and certainty going to be the next prime minister.
"The Maoists through the elections of 10 April have been completely legitimised as a force ... a unique situation where within two years an ... insurgency has been converted into a legitimate force."
The democratisation of the Communist party of Nepal Maoists is still something that is in progress.
"In the days ahead there is exhilaration in the streets of Nepal for the elections just conducted as well as for a monarchy that has just been abolished ... a monarchy that has played around with politics of Nepal and played in the murky waters for all the modern era of Nepal; that stretches back to 1950," he said.
"However there is some concern about how the Maoists with their violent past and to some level violent present will convert themselves now that they have been given legitimacy by the vote."
"Given the fact that [Maoists] will have the responsibilities of power, because till now they were essentially an outside force, now they are very much the establishment of Nepal."
The flag of the Shah dynasty was taken down from the main palace in Kathmandu, which will now be converted into a national museum.
"The royal flag was replaced by Nepal's national flag inside the palace," a palace official said.
"The flag has been changed as part of the government decision to implement a republic."
Ban Ki-moon, United Nations chief, welcomed the vote, saying the Nepalese "have clearly spoken for peace and change."
The United States, which continues to list the former rebels as a foreign "terrorist" organisation, urged "forward political developments" in Nepal, Tom Casey, US State Department spokesman said in Washington.
"The international community, including India, have had no choice but to accept the verdict of the people of Nepal which gives the Maoists - not the majority - [but] 37 per cent in the constituent assembly house of 601 members."
"To that extent the Maoists have been given a very calibrated vote by the people of Nepal to make them completely responsible yet not to give the entire assembly lock stock and barrel to them," he said.