Nepal's former prime minister Sher Bahadur Deuba and his cabinet minister Prakash Man Singh have been set free, hours after the country's Supreme Court dissolved the royal anti-corruption commission which jailed them on graft charges in 2005.

The two leaders had been jailed by the order of the Royal Corruption Control Commission for their involvement in the alleged irregularities in the ADB-funded Melamchi Drinking Water project.

They were set free at midnight following the Supreme Court's decision to scrap the six-member RCCC and annul all its rulings terming them as "unconstitutional", according to officials.

Deuba and Singh were freed hours after the Supreme Court verdict annulled the anti-graft commission constituted by King Gyanendra to grill politicians and bureaucrats last February when he sacked Deuba's government and assumed absolute power by suspending democratic rights and press freedom.

The RCCC constituted on February 16, 2005, gave two years imprisonment sentence and placed a Rs 90 million fine on Deuba on July 26.

Deuba and Singh had refused to recognise the RCCC formed by the king, saying it was "unconstitutional" and aimed at "eliminating those who opposed his February 1" seizure of power.

The king also constituted a parallel constitutional body, Commission for Investigation of Abuse of Authority.