Prachanda, who has been a critic of India, said the way Modi spoke demonstrates that he thoroughly understands the "ups and downs" of Nepal's peace process.
"His speech was touching and very inspiring," the United Communist Party of Nepal leader whose actual name is Pushpa Kamal Dahal said while commenting on Modi's 45-minute address.
"I feel a new chapter is going to open in India-Nepal relations," said Prachanda who will be meeting Modi tomorrow.
After Modi's address, Prachanda said he was "encouraged" and things can move forward after his meeting with the Indian leader tomorrow.
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Prachanda had earlier led a decade-long armed Maoist movement before coming overground after an agreement was reached in 2007.
Manohar Bhattarai, Secretary-General of the Constituent Assembly, also said Modi's speech touched the heart of all Nepalese.
Modi began his hour-long address by speaking in Nepalese, which was received with a round of applause.
Mahesh Vishwakarma of the Nepali Congress also hailed the speech, saying Modi's focus on neighbourhood was a great gesture.