The underground Communist Party of Nepal (Maoist), which has been waging a violent battle against monarchy in the Himalayan kingdom, has declared a ceasefire vowing to sit for renewed peace negotiations, hours after the government agreed to revoke its decision to brand them as a terrorist outfit.

"Welcoming the government's decision to remove the terrorist tag on our heads, and the Interpol red corner notices against our members, we declare a ceasefire and agree to participate in a dialogue process," CPN-M chairman Pushpa Kamal Dahal alias Prachanda said in a press statement issued late on Wednesday.

He sought the support of CPN-M party workers, members of the Maoists' 'revolutionary People's Liberation Army', leaders of various political parties and the general public to implement the decision.

Prachanda vowed to push the Maoists' basic demands such as a round-table conference, an interim government and elections for the constituent assembly.

Hours before the rebel leader declared the ceasefire, the Lokendra Bahadur Chand government decided to remove terrorist tag on the rebels, withdraw the rewards for information leading to their capture and the red corner notices issued against them, Pande said.

The government now has to notify the international community about withdrawing the red corner notices to pave the way for peace negotiations.

After a cabinet meeting, Prime Minister Lokendra Bahadur Chand announced formation of a high-level committee to initiate a dialogue with the rebels, Radio Nepal reported.

Physical Planning and Construction Minister Narayan Singh Pun would be the convener of the committee, it said.

The development comes three days after suspected Maoist rebels gunned down Inspector General of Police Krishna Mohan Shrestha, head of the newly set up Armed Police Force.