The Nepal government accepted the two main demands of Madhesi protesters and will amend its Constitution, months after the new Constitution led to violent protests in the country.
The amendments to Nepal's Constitution will be based on proportionate participation in state bodies and redrawing of borders of the constitutionally created federal provinces.
The Madhesi community had been angered after the new Constitution was adopted in September, arguing that the new plan to divide the country into seven federal provinces would divide their ancestral land and marginalise them.
The decision to make constitutional amendments was taken at an emergency Cabinet meeting on Sunday and conveyed to the agitating Samyukta Loktantrik Madhesi Morcha (SLMM) on Monday.
Violent protests over the constitution have led to several deaths in recent months in Nepal, while the blockade at the India-Nepal border has led to shortage of essential goods in the Himalayan nation.
The Indian government welcomed the move by the KP Sharma Oli government.
"The External Affairs Ministry was informed by Nepal's Deputy prime minister and foreign minister today that the Nepalese Cabinet took decisions to resolve demands regarding the Constitution raised by agitating Madhes-based parties," foreign ministry spokesperson Vikas Swarup told reporters on Monday.
"The government of India welcomes these developments as positive steps that help create the basis for a resolution of the current impasse in Nepal. We urge all Nepali political forces to now demonstrate necessary maturity, flexibility to find a satisfactory solution to the Constitutional issues through constructive dialogue in an agreed timeframe," he said.