The government will provide a compensation of Rs 10 lakh each to the families of Nawaraj Pathak of Kavre district and Kul Bahadur Tamang of Dolakha district, the council of ministers said following a cabinet meeting.
Their children will be provided free education.
Pathak died in police firing while Tamang was killed in clashes during the local-level elections on May 14.
The meeting also acknowledged a movement launched by Madhesi parties demanding re-demarcation of the provincial boundary as a political one.
A decision was made to forward a proposal in the next cabinet meeting for withdrawing cases filed against activists participating in the agitation.
The first phase of local-level polls took place across Nepal after a gap of 20 years on May 14. The second round of polls will be held on June 14.
They should be held in every five years but due to political instability, they were halted since May 1997.
Some Madhes-centric parties have opposed the elections until the Constitution is amended to accommodate their views: more representation in parliament and redrawing of provincial boundaries.
Madhesis, mostly of Indian-origin, launched a prolonged agitation between September 2015 and February last year against the implementation of the new Constitution which they felt marginalised the Terai community.
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