Jigme Dorje Palbar Bista, who was 86, reigned over the arid kingdom high on the Tibetan plateau for more than half a century before stepping down in 2008 when Nepal abolished its own monarchy.
"He passed away at 1 am at the hospital this morning. He was admitted three days ago. He had not been well on and off since about a year. But was having more difficulty recently because of the cold," the former king's nephew Tsewang Bista told AFP.
Nepal annexed the former kingdom of Lo in the 18th century, but allowed the king to retain his title.
Bista succeeded his father Angun Tenzing Tandul in 1964, continuing a family line that could trace its lineage back to Ame Pal, the warrior who founded the kingdom in 1380.
He supported a CIA-funded guerrilla campaign to oust Chinese forces from Tibet after a failed uprising in 1959, allowing Upper Mustang to be used as a base.
Bista had lived most of his life in the medieval walled capital of Lo Manthang, but moved to Kathmandu over a year ago after he became ill, suffering from heart and kidney problems.
Ringed by vast canyons and imposing red mountains, the remote kingdom has only recently begun to see glimmers of modernity after a new road connecting Upper Mustang to China and India was completed in 2014.
The region was closed to visitors until 1992 and numbers are still strictly regulated.
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