Mr Koirala said that, with the peace deal, killing and intimidation had stopped and politics of reconciliation had begun.
"I would like to thank Prachanda for finding a peaceful solution. Nepal has entered into a new era and it has opened the door for peace. Now we need to meet together in co-operation and understanding to make sure this agreement is fully implemented," the 85-year-old Prime Minister said.
The event was broadcast live on Nepalese television and, on the streets of Kathmandu, small groups gathered with candles to celebrate the move to peace.
More than 12,500 people are thought to have died since the Maoists declared their "people's war" in 1996.
"It's the end of the war and the end of the time when Nepalese were killing Nepalese," said Rupa Joshi, a middle-aged Kathmandu woman who gathered a group of friends, via SMS, to celebrate on the street near the convention centre where the documents were signed.
"It's a hard-earned peace."
AFP reports: The UN hailed the deal and called on both sides to move quickly on arms issues.
Once deadly foes, the multi-party Government and Maoist rebels have observed a ceasefire for more than six months after they co-operated in April to organise mass protests that forced King Gyanendra to restore Parliament and end dictatorial rule.
The deal leaves the king facing an uncertain future, with the fiercely anti-royal rebels vowing they will continue to campaign - albeit peacefully - until the 238-year-old monarchy is consigned to the history books.
Some of the parties in the coalition, however, favour a ceremonial role for the king, who is revered by many as a Hindu deity.
But Kanak Mani Dixit, the managing editor of the widely respected
Himal South Asia
monthly, said Gyanendra was now completely sidelined.
"He is a nonentity now. He is the most humiliated man in Asia," said Dixit, who joined a cheery candlelit celebration of the deal in the otherwise quiet capital.
"This is the real thing, not a false dawn. The people's war is finally over."
The agreement was signed at the Birendra International Convention Centre, named after the previous king assassinated by crown prince Dipendra in 2001 in a drug and alcohol-fuelled palace massacre.
Dipendra then committed suicide, paving the way for Gyanendra to assume the throne. He gathered increasing control over the Government and the army before declaring absolute rule on February 1, 2005.
Yesterday's deal placed incredible pressure on the rebels and Government to deliver, said Yubaraj Ghimire, editor of Nepali magazine
Samaya
(
Time
).
"Any deviation from this peace on the part of those who signed it would not only be dishonesty but it would constitute a crime that no Nepali would ever forgive."
Nepal's giant southern neighbour India also warned of failing to meet expectations.
"We call upon all sides and all stakeholders in Nepal to strictly abide by their commitments under the agreement ... The people's mandate and their trust must not be betrayed," an Indian foreign ministry spokesman said.
Praising the deal, Britain called on Nepal to work to make it a reality.
"We now look to both sides to make the agreement a reality throughout Nepal. Specifically, the UK again urges both the Government of Nepal and the Maoists to respect and uphold the rule of law," Foreign Secretary Margaret Beckett said.