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Gurkha soldiers who served in the Army before 1997 will be given the right to settle in Britain under a new policy set to be announced by the Home Office.

The new settelement comes after a ruling from High Court judges in October that the Government needed to review its policy on whether Gurkhas who had served before 1997 could live in the country.

Under the new rules, up to 36,000 Gurkhas who served in the British Army before this period could be allowed to settle in the UK.

The Ministry of Defence had argued in the High Court case that serving Gurkhas up to 1997 had no expectation of living in Britain and returned home to Nepal after completing their term of service. Only Gurkhas with strong links to Britain could be considered for residency.

The judges accept that 1997 was a reasonable cut-off date but said the decision to deny Gurkhas who had served before 1997 the automatic right to live in Britain was discriminatory and illegal.

The Gurkha veterans who will be covered by the new policy are those who served in Hong Kong before the handover to the Chinese in 1997. After that date new Gurkha recruits were based in Britain.

Defence officials have now reportedly warned the Home Office that if the right to live in Britain is extended to every Gurkha who has served in the British Army, Nepal might scrap the 1947 agreement under which they are recruited. It is thought the loss of so many citizens and their army pensions could leave a huge hole in the Nepalese economy.

One Whitehall source said that the Home Office had come up with certain criteria for settlement that will help keep the numbers down without flouting the judgment of the High Court.

The source told The Times: "We can still meet what the judges want while keeping the criteria as tight as possible. We have no idea at this stage how many will want to come to live in the UK and how many members of their family they will bring with them."

Britain's links to the Gurkhas date to 1814 when the country fought a fierce war against Nepal, resulting in a deep mutual respect between the two.

They have since fought in both World Wars, the Falklands, Balkans, Iraq and Afghanistan.

Half the Army's 3,400 Gurkhas are infantry soldiers in the Royal Gurkha Rifles, and half serve in specialist Gurkha "corps" units providing engineering, logistics, signals and medical support.