The decision was taken at a meeting between government officials and poultry farmers Wednesday, Narayan Ghimire, the government's spokesperson for the bird flu control campaign, told Xinhua.
"Bird flu could not be controlled even after several attempts including a ban on the chicken trade," Ghimire said.
In the emergency zone, around 500,000 fowl including chicken, duck and pigeon, will be culled along with their eggs, feed and excreta. Poultry farms will be cleaned and disinfected.
The emergency zone will remain active for at least three months. During this period, fowl cannot be transported and supplied to and from Bhaktapur. Sale of chicken and other fowl meat will also be banned.
The government will compensate the loss to poultry farmers, the spokesperson said.
Bhaktapur has witnessed more than 40 cases of bird flu in a month. The other two districts, Lalitpur and Kathmandu, have reported at least 10 cases.