Shouting "Long live the Nepali People" and Down with the monarchy," around 3,000 people marched through the streets of the capital Kathmandu and converged on a park, witnesses said.

"We will fight for the rights of people and not for power," N.P. Saud, a lawmaker belonging to the Nepali Congress (Democratic) told the crowd.

Home Ministry spokesman Baman Prasad Neupane said the nationwide public holiday was announced "to celebrate yesterday's historic proclamation that made the house of representatives sovereign and all-powerful."

In the unanimously passed proclamation, the government stripped King Gyanendra of political power and removed his control of the army.

The proclamation also declared Nepal a secular state, ending its unique status as the world's last Hindu kingdom.

Under other provisions, the government will choose the successor to the throne -- a step aimed at the hugely unpopular Crown Prince Paras whose playboy reputation has made him a butt of public criticism.

The royal family will also have to pay tax on properties and income.

Newspapers splashed stories about the proclamation on front pages, describing it as "momentous" and "glorious."

"A Nepali Magna Carta is born," a headline in the Kathmandu Post declared.

"This historic day vindicates that the people power reigns supreme," said an editorial in the Kathmandu Post, an English-language daily.

Thursday's decision effectively ended the power of King Gyanendra's 250-year-old Shah dynasty and marked a turning point in Nepali history, the Himalayan Times said in an editorial.

"With it (the proclamation) comes an end to the Shah dynasty as the custodian of the nation's sovereign power and the centuries of legacy it has embodied," the editorial said.

Residents of the capital welcomed the proclamation and called for the monarch to take a back seat.

"I really respect the politicians and the political parties for this landmark decision. It's a victory of the people over dictatorship," said Ramesh Khadka, a 30-year old taxi driver.

"The king should be ready to accept the ceremonial position like the monarchs of Japan and Britain, otherwise the people can remove him and establish republic in the country," he said.

Gyanendra was forced by mass protests to relinquish absolute rule last month and restore parliament after seizing power in February 2005 in what he said was a bid to quell a deadly Maoist insurgency.

Since his downfall, the government and Maoists have called a ceasefire and parliament has agreed to a rebel demand to hold elections for a special body that will rewrite the constitution and formally curtail the king's power.

Preparations for peace talks are well underway to end the decade-long Maoist insurgency that has claimed at least 12,500, and talks will take place soon, the government has said, although a date for talks has yet to be announced.

After fighting for a communist republic since 1996, the Maoists now say they are willing to rejoin mainstream politics and accept multi-party democracy.

However, they need to stop all forms of violence before being allowed to join the interim governemnt, Nepal's deputy prime minister said Friday.

"We want to end all possibility of armed conflict in the future and we want to being them (the Maoists) into the interim government and into peceful democratic politics, not with arms and not with violence. It should be abandoned and it should be guaranteed," KP Sharma Oli Nepal's deputy prime minister and foreign minister told reporters and diplomats Friday.

The ball was in the politicians' court to resolve the insurgency, said Mohan Shrestha, a grocer in the city centre.

"King Gyanendra's takeover went against the aspirations of the people. The parties were compelled to take this bold step to counter the king's absolute rule," he said.

"Now, the parties should move ahead towards resolving the Maoist problem."