CPN-UML's central committee meeting endorsed the seven-point agreement reached between the two parties and decided to join the Koirala-led government under the leadership of Vice President of the party Bam Dev Gautam.
The Nepali Congress has decided to hand the key Home Ministry to the CPN-UML, The Himalayan Times reported.
Later, a meeting between Nepali Congress (NC) and the CPN-UML was held as the leaders of both the parties were yet to come to an agreement about the division of other ministries.
"We have decided to join the government provided the 7 point pact between the Nepali Congress is implemented," he said.
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The CPN-UML - the second largest party with 173 lawmakers in the 601-member Constituent Assembly - boycotted the oath-taking ceremony of Prime Minister Koirala and no legislator from the party was inducted in the cabinet.
The CPN-UML backed Koirala for the top post after the party reached a six-point deal with the Nepali Congress which has 194 lawmakers in the assembly elected last year.
The first assembly, dominated by the one-time rebel Maoists, collapsed in May 2012 after failing to agree on a Constitution and complete the peace process. No party could secure a majority in last year's Constituent Assembly polls.