Viewing the parliamentary system as inconsistent with Nepalese conditions, the king announced a new constitution on December 15, 1962. According to the provisions of the 1962 constitution, all power in the state – executive, legislative and judicial – belonged to the king and emanated from him; the king was the chairman of the Council of Ministers and could appoint members of the cabinet at his discretion. The Constitution also established the Panchayat system of government (Panchayat is the name of the self-government bodies in the countries of South Asia). In accordance with the basic law, a multi-stage system of panchayats was created in the country, which included village, city, district and zonal panchayats. The constitution did not fix their rights and obligations. Instead of the dissolved parliament, the National Panchayat was created, some of whose deputies were elected by members of the lower Panchayats, and some were appointed by Mahendra himself. Not a single bill or addition to it could acquire the force of law without the approval of the king, just as bills could not be discussed at the session of the National Panchayat without the prior approval of the king.

In the 1960s, King Mahendra put forward several programs of social and economic transformation, strengthened the autonomy of local governments and pardoned political prisoners in 1968. However, the activities of political parties were prohibited, and all decisions were made in an authoritarian way. A new set of laws adopted in 1963 eliminated the most odious feudal remnants in the field of social relations (banned various labor obligations and unpaid forced labor, early marriages, abolished caste restrictions, unified structures and systems of government). The Agrarian Reform Law of 1963 and subsequent acts were aimed at eliminating large landowners’ tenure. However, the agrarian reform undertaken in the mid-1960s in practice covered a very small part of the territory. All this did not contribute to the popularity of the panchayat system among the population of the country. In 1971, the Communist Party of Nepal raised a peasant uprising in the Japa district.