Nepal's King Gyanendra has announced a powerful panel he says will crack down on corruption, favouritism and bribery.
The king promised to crack down on corruption when he took over
The royal commission can seize property amassed through abuse of authority or smuggling and will have all the powers of a court, the palace said.
The human rights group, Amnesty International, has meanwhile warned Nepal is heading towards "catastrophe".
King Gyanendra took direct power two weeks ago saying the former government had failed to tackle Maoist rebels.
The six-member royal commission will be headed by a veteran bureaucrat, Bhakta Bahadur Koirala.
"The commission can investigate and take action against any person on the basis of complaints or information received from any source in connection with smuggling or tax evasion, involvement in the dealing of illegal contracts and other actions defined as corruption by the existing laws," a palace statement said.
The king said the former government failed to tackle Maoists
Anyone found to be defaming the commission could be fined up to $150 and jailed for up to six months.
However, Mr Koirala said there would be no prejudice or political vendettas in the workings of the commission.
The commission was greeted with cautious optimism by some in Nepal.
"It is about time some action was taken against these corrupt politicians who have done nothing but get fat while the country is getting poorer everyday," Sanjay Aryal, a university student in capital, Kathmandu told the Associated Press.
"If this [commission] fails, then there is no cure for corruption."
But tax clerk Shreeram Shreshta said: "We have had so many commissions in the past that have done little more than prepare a report with no action taken."
Meanwhile, Amnesty International has warned Nepal is on the "brink of disaster" and that there is a "sense of fear in civil society".
"The long-standing conflict between the Maoists and the armed forces has destroyed human rights in the countryside. Now, the state of emergency is destroying human rights in urban areas," said Amnesty's secretary general Irene Khan.
"While some leaders have been released, more are being arrested, particularly at district level. There is strict media censorship enforced by the army and there is total clampdown on political dissent," she said.
Ms Khan also called for Nepalese troops serving on overseas United Nations peacekeeping activities to be vetted to ensure they had not been guilty of human rights abuses.
Former prime minister Sher Bahadur Deuba has also spoken out against the suspension of democracy.
Mr Deuba, who was removed by the king and put under house arrest, said in a statement that the monarch should immediately begin talks with leaders of political parties.
He called for all jailed leaders to be released and vowed to join with other political parties to fight to restore democracy and civil rights.
The major political parties have planned pro-democracy demonstrations from Friday.