The Nepalese government is finalizing proposals that could drastically clip the king's powers and privileges. The government has also begun a crackdown against officials in the former royalist administration.
The Nepalese Cabinet Monday discussed proposals to take away the king's control over the army, and scrap any political role for him.
Under Nepal's current constitution, most powers lie with parliament, but the king is the head of the military.
King Gyanendra ousted the government last year, and took control of the country, bringing him into direct conflict with political parties. But massive pro-democracy protests forced him to reinstate parliament, and hand over power to a multi-party government last month.
Cutting the king's powers is now a key demand across the country, from pro-democracy protesters and Maoist rebels, who began fighting for a republic a decade ago.
Officials say parliament will debate a proclamation to curtail the monarch's powers later in the week.
The landmark resolution was expected to be presented Monday, but was put off until the Cabinet is expanded.
Arjuna Narasingha, a senior member of the seven-party alliance that led the fight against the king, says it is necessary to bring the army under civilian control.
"The strength of the king to dismantle democratic process and democratic institutions is the army. So, we want [to] democratize the army, and keep it under people's representative institution, that is [the] Cabinet, which is responsible to parliament," he said.
There also are plans to tax the king's income and property, and allow his actions to be challenged in court.
The Nepalese government has begun cracking down on powerful officials in the king's ousted administration. Last week, it arrested five ministers, and suspended several top security officials on the recommendation of a commission probing human rights abuses during the pro-democracy demonstrations.
The government's plans to hold peace talks with the Maoist rebels received a boost after their leader, Prachanda, said he will personally represent the guerrillas at the negotiations.
No date has been set for the talks, but both sides have declared a truce. The government has removed the terrorist label from the guerrillas, and has begun releasing jailed Maoists.
The talks are expected to focus on the formation of an assembly to rewrite the country's constitution.
The government says it wants to draw the rebels into the political mainstream and return peace to the country.