India Prime Minister Manmohan Singh has asked Nepal's King Gyanendra to take concrete steps towards restoring multi-party democracy in his country.
India has pushed for the speedy return of democracy in Nepal
The two South Asian leaders held talks at the two-day summit of South Asian leaders in Dhaka.
The king took control of the Himalayan kingdom in February, saying the government had not done enough to quell a Maoist insurgency.
He has announced that parliamentary elections will be held by April 2007.
Opposition parties say they plan to boycott any election called by the king, because they say his government is unconstitutional.
Mr Singh and King Gyanendra had a meeting on the sidelines of the regional South Asian Association for Regional Cooperation (Saarc) meeting in Dhaka.
"The prime minister underlined to his majesty the importance of restoring multiparty democracy in Nepal as early as possible and the need to take concrete steps in this regard," Indian foreign ministry spokesman Navtej Sarna told reporters after the meeting.
"He also said this would not be possible without the involvement of political parties," Mr Sarna said.
The BBC's Jyotsna Singh in Dhaka says the king said he was prepared to take steps towards restoring democracy.
This is the second meeting between Mr Singh and King Gyanendra since the monarch seized direct power in Nepal.
The two leaders met on the sidelines of the Asian-African summit in Indonesia in April.
In July, India resumed supplies of military equipment to Nepal which had been suspended supplies in protest at the king's takeover.
Free trade zone
The two-day summit of the South Asian regional grouping ended in Dhaka on Sunday.
Afghanistan has been admitted as a new member of the group.
Saarc already brings together seven nations - India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan and the Maldives.
The BBC's Roland Buerk in Dhaka says they are expected to sign a declaration to implement a free trade area by the beginning of next year.
Increasing economic ties are seen as crucial to reducing South Asia's crippling poverty but negotiations had stalled over disagreements over which industries would remain protected by high tariffs.
There is also likely to be an announcement of a joint approach to tackling terrorism at the summit and a decision on whether to admit Afghanistan as a new member of the regional grouping.
On Saturday, the prime ministers of India and Pakistan held private talks on the sidelines of the summit.
Pakistani Prime Minister Shaukat Aziz told reporters that he had told Mr Singh that his country was against "all forms of terrorism and is ready to cooperate with any country to combat the menace".