Nepali Prime Minister Girija Rasa Koirala Wednesday evening announced an indefinite cease-fire with and removed the "terrorist" tag on the anti-government guerrillas.
The government also appealed to the guerrillas' leadership to come for peace talks.
This was announced by Deputy Prime Minister KP Sharma Oli.
The seven-member cabinet took this decision after a formal meeting in Kathmandu Wednesday.
According to sources the government has also decided to release the guerrillas who are under detention.
The guerrillas have already announced a three-month cease-fire on April 27, after King Gyanendra relinquished power and reinstated parliament.
This is the third time that both the guerrillas and the government have declared a truce.