Nepal said Tuesday it had agreed to allow a senior Tibetan Buddhist monk to be cremated in Kathmandu, overturning an earlier ban which had sparked claims that it had caved to pressure from China.

The Nepalese Embassy in India initially granted approval for Kunzig Shamar Rinpoche's body to be transported to Nepal from neighbouring India for cremation after he died of a heart attack in Germany last month.

Nepal denied accusations by academics that it was bowing to diplomatic pressure from neighbouring giant China when it retracted the approval two weeks later.

Nepal said it did not know Rinpoche held a Bhutanese passport when the original approval was given, adding that "Nepal does does not have laws regarding cremation of foreigners".

After frantic lobbying by Tibetan Buddhist scholars in Kathmandu, the government agreed to the request, a Nepalese minister told AFP.

"We have decided to allow the cremation of Shamar Rinpoche's body in Nepal as per his last wishes since he contributed so much to Buddhism," said Lal Babu Pandit, minister of general administration.

Rinpoche, 62, was the 14th Shamarpa of the Karma Kagyupa lineage, also known as the Red Hat Lama of Tibet, and one of the most senior figures in Tibetan Buddhism with followers in Asia and Europe.

The Himalayan nation, home to around 20,000 Tibetans, is under intense pressure from China to contain the activities of exiles who have fled their homeland.

The government in Kathmandu has said it will not tolerate what it calls "anti-China activities" and has grown increasingly intolerant of protests highlighting human rights violations in Tibet.

Pandit said the funeral, to be held on Thursday, "should not damage culture, religion, social harmony and should not breach Nepal's laws".

"We have allowed the cremation in Nepal, but his followers are not allowed to carry out any function other than last rites," he said.

Ramesh Dhungel, a Nepalese scholar of Tibetan Buddhism, who had lobbied the government over the issue, said: "We are very happy with the decision."

"It was like fighting a war, but finally, the government agreed and we can perform the last rites for Guru Rinpoche," Dhungel told AFP.

He said plans were in progress to bring the body from Bhutan, where it had been transported from India over the weekend, to the Shar Minub Institute in Kathmandu, a monastery the Shamarpa had built.