After nearly a decade of relative stability in the late 1980s, the socio-economic situation of the population deteriorated sharply, caused by the aggravation of Nepal-Indian relations. In February 1990, the Nepalese Congress and the United Left Front launched a political campaign against the Panchayat system, relying on the support of the people of the Kathmandu Valley and many localities in the Terai and Lesser Himalayas. Despite the prohibition of the Movement for the Restoration of Democracy, which united the main parties, the protest demonstrations continued for two months. On April 1, after months of bloody clashes, during which about 500 people died and thousands were arrested, King Birendra agreed to the creation of a new government, the head of which was appointed 4 days later the moderate monarchist LB Chand. However, the opposition demanded radical reforms and changes in the system.
On April 6, the bloodiest clashes took place in front of the royal palace, in which from 200 to 300 people died. On the evening of April 8, 1990, King Birendra announced the lifting of the ban on political parties. Eight days later, on April 16, under pressure from opposition parties and ongoing popular protests, the king dissolved the National Panchayat and relinquished his right to unlimited power. On April 19, an interim government was formed, headed by the Chairman of the Nepal Congress (NK) KP Bhattarai, which also included representatives of the NK, LF and human rights organizations. Two cabinet members were named king. The transitional government promised to draft a new constitution and hold general, free parliamentary elections within a year.
In June 1990, India ended its 15-month conflict with Nepal, which resulted in the closure of 13 of 15 border checkpoints. In November 1990, a new constitution was approved, which provided for the limitation of the power of the monarch, the establishment of parliamentary democracy, the accountability of the government to parliament and the observance of human rights.
The parliamentary elections held on 12 May 1991 were won by the center-left Nepalese Congress party. She received 37.7% of the vote and 110 out of 205 seats in the House of Representatives. The elections showed a significant increase in the influence of the communists, who became the second most important political force in the country. The Communist Party of Nepal (United Marxist-Leninist Party) won 28% of the vote and 69 seats. In total, the left-wing parties received 36.5% of the votes, which allowed them to win 82 seats. Two factions of the conservative National Democratic Party (NDP) and the Goodwill Party (PDV) were also represented in parliament. All the other 12 parties that took part in the elections failed to get into parliament.
As a result of the 1991 elections, the Cabinet of Ministers was formed from the NK members, headed by G.P. Koirala. Liberal reforms in the economy, rising prices for basic foodstuffs, and the unresolved agrarian problem caused serious discontent among the general population and disillusionment with government policies. In April 1992, a general strike resulted in street clashes between protesters and police, which resulted in many deaths.
Disagreements that arose in 1994 between Prime Minister G.P. Koirala and NK leader G.M.S. Shreshta led to a split in the ranks of NK and made the government ineffective. In July 1994, Koirala resigned, after which parliament was dissolved. As a result of the general elections held on November 15, 1994, no party won a majority sufficient to form a government. As a result, a minority government was formed, headed by the leader of the Communist Party of Nepal (UML) Man Mohan Adhikari. It lasted from December 1994 to September 1995, when a vote of no confidence was passed on it. The new prime minister was appointed Sher Bahadur Deuba, one of the leaders of the NK, who formed a coalition government of NK, NDP and PDV.