Political instability and a decade-long civil war have also left more than a third of Nepal´s 12.6 million children living below the poverty line, the study found.[break]
"Malnutrition is a real obstacle to the survival, growth and development of children," said Gillian Mellsop, Nepal representative for the UN Children´s Fund (UNICEF).
"The serious effects of under-nutrition at a young age can be irreversible, and can ultimately hinder the development status of the whole nation.
"Every second child aged under five in Nepal is stunted or has a low height for their age -- a result of chronic under-nutrition."
Landlocked Nepal is one of the world´s poorest countries, with high rates of unemployment and an average annual income of just 472 dollars.
Development was severely hit by the 10-year armed conflict between Maoist rebels and state security forces that ended in 2006.
The initial optimism that greeted the end of the war faded as a series of governments has failed to provide basic services such as electricity and clean water.
The country is currently stuck in a political deadlock with the parliament failing to elect a prime minster in 15 votes stretching over four months.
Nepal has made some progress over the past decade, notably on reducing maternal mortality and improving education. But deep inequalities persist.
"Children from marginalised groups and poor families are under-nourished, and disparities between rich and poor have widened," said the report.
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