Koirala, who has been the prime minister five times, passed away at the age of 87 after suffering prolonged illness.
Nepali Congress Vice President Gopal Man Shrestha informed that Koirala died at 12.10 pm local time at his daughter and Deputy Premier Sujata Koirala's residence.
Just hours before his death, it was reported that Koirala crashed into a coma alarming the country.
Koirala, who is also the President of the Nepali Congress which is a key part of the ruling CPN-UML-led coalition, also led the protests that brought down King Gyanendra's authoritarian rule.
He is often described as a peace architect as he managed to tear down 240-year-old monarchy and turn Nepal into a Republic.
On hearing the news of the leader's death, thousands of people gathered outside the residence.
His last rites will be performed on Sunday, Mar 21.