"The move has opened up avenues for cooperation between Maoists and the US government. It will help strengthen our relations," Foreign Minister Narayan Kaji Shrestha told AFP.

The decision to remove the Maoists from the blacklist was announced Thursday by the State Department, which said the party was "no longer engaged in terrorist activity that threatens the security of US nationals or US foreign policy".

An estimated 16,000 people died in a brutal 1996-2006 "people's war" fought by the Maoists against the once absolute monarchy, before the rebels turned to politics and then took power in elections two years later.

Formed in 1994, the party was designated a global terrorist entity by the United States in 2003 and added to the terrorist exclusion list the next year.

The delisting means that US organisations and companies can now conduct business with the Maoist leadership, and any property or interests that were frozen in the United States are no longer blocked.

Shrestha said that while the Maoists had enjoyed "cordial relations with US officials", he acknowledged designation had soured the diplomatic atmosphere.

"Despite several meetings and exchanges, it had created an awkward environment," the foreign minister added.

The Maoists became Nepal's largest party in elections for a constituent assembly in 2008 and oversaw the abolition of the monarchy.

However the assembly subsequently failed to draw up a peacetime constitution by an agreed deadline, prompting it to be dissolved. The Maoists are now running the Himalayan nation on a "caretaker" basis.

Nepal's main opposition party Nepali Congress reacted cautiously to the decision by Washington.

"We expect that Maoists will henceforth commit themselves to peaceful politics both in words and in action," Ram Sharan Mahat, a senior leader of Nepali Congress, told AFP.