Krishna Bahadur Mahara, the minister for communication and information, said that a 10-kilometer (8-mile) quarantine zone had been imposed to contain the spread of the virus around the Kakarbhitta village. All birds within a 3-kilometer radius of the village are due to be culled.
"Six out of every seven chickens brought from Kakarbhitta were found to have been infected with the avian flu," Mahara said, adding that the region had been declared an emergency zone.
It is believed the outbreak, affecting domestic chickens and ducks, in the Jhapa administrative district may have spread across the border from the Indian state of West Bengal and Assam, where some 500,000 domestic fowl have been culled since December 2008 following a bird flu outbreak.
According to the World Health Organization, avian influenza has so far killed 243 people out of a total 387 confirmed cases worldwide.
Although there have been no incidences of human to human infection, experts fear that it may mutate into a form that could easily be transmitted from person to person, causing a global pandemic.