Nepal's King Gyanendra says he is reinstating parliament to meet a key demand of protesters who have been taking to the streets for the past 19 days.
The king made the announcement on national television late Monday.
The seven-party political alliance that is leading the protests says the king's move is a victory of the people's movement.
Earlier, diplomats in Nepal said they were trying to broker a deal between the king and the seven-party alliance. The king's announcement about parliament came one day before what was planned to be the largest protest yet.
The monarch triggered the crisis more than 14 months ago when he fired the elected government and assumed absolute power, saying the government had failed to deal with the Maoist insurgency.
The Maoists have now aligned themselves with the seven-party alliance and they backed the demonstrations. Nepalese police killed at least 14 people during the protests and hundreds of activists are still in jail.
Last week, the king offered to give back power to the people by forming an interim government and letting the alliance name the prime minister. But the alliance insisted on an elected constituent assembly to rewrite the constitution to limit the king's power to a ceremonial head.
The king took power in 2001, fired the government in 2002 and reinstated the prime minister and his cabinet, but not the parliament, in 2004. Then he fired the government again in 2005 and took absolute power himself.