"The cabinet agreed for existing political parties and groups of politicians to carry out their political activities," government spokesman Yongyuth Mayalarp told reporters after a cabinet meeting.

"This resolution is effective immediately," he added.

After seizing power in a bloodless coup last September, the junta imposed martial law and suspended all political activity. Martial law was lifted in half the kingdom in January, but the ban on political activity remained.

Last week, Thailand's Constitutional Tribunal dissolved Thai Rak Thai (TRT), the party founded by ousted premier Thaksin Shinawatra, after finding it guilty of violating election regulations in polls in April 2006.

The court banned 111 senior party members, including Thaksin, from politics for five years. TRT's main political rivals the Democrat Party were cleared of similar vote fraud charges.

Members of TRT on Monday petitioned Thai Prime Minister Surayud Chulanont to lift the ban on political activity, saying it hampered their efforts to form a new party.

They warned that if it were not lifted, elections promised by the junta by December this year would not be democratic, fair or transparent.

"This is a good sign which will lead to elections," said former TRT executive Suwat Liptapanlop after Tuesday's announcement.

"This relaxing will contribute to building confidence and reducing conflicts in society, because the politicians will have an outlet so they won't have to go underground."

Democrat Party spokesman Ong-art Klampaiboon told AFP they welcomed the decision to lift the ban, and said that the party, which is the oldest in Thailand, would begin their activities almost immediately.

"It is the right thing to do to relax the ban ... because we will have a referendum on the constitution and eventually elections in December, so we should have a democratic climate," he said.

But members of TRT who are hoping to register a new party with the Election Commission will have to wait for a new law to be passed by the junta-appointed parliament, the National Legislative Assembly.

While lifting the ban on political activities required only simple cabinet approval, a new law is required to repeal a junta order suspending the registration of new political parties.

The Council of State, the nation's top legal body, will next week send a draft bill on party registration to the cabinet, who will then forward it to the parliament for consideration.

There is no timescale for the passage of the bill.

Martial law was lifted in 41 of Thailand's 76 provinces on January 26.

Restrictions remain in 35 provinces, mostly in the rural north and northeast, the powerbase of ousted Thaksin, and in some southern provinces where a separatist insurgency rages.