Princess Ubolratana Mahidol, the 67-year-old elder sister of the king, will stand for the Thai Raksa Chart party in the March 24 poll. Prime Minister Prayut Chan-o-cha, who staged a coup in May 2014, announced on Friday he would contest the election.

In a statement, the party said it was "deeply honoured to have received Ubolratana Mahidol's kindness" in accepting the nomination.

"Having been a representative promoting tourism for over 10 years, she concluded that it’s time to volunteer to serve as prime minister, assisting the country and the people by utilising the knowledge and abilities she accumulated over the years in various aspects both locally and abroad," the party said.

Key members of the Thai royal family are protected by the world’s harshest lese-majeste law, where those convicted of royal defamation can be jailed for up to 15 years per offence.

Princess Ubolratana is not one of those officially protected by the law, but all discussions of the family are sensitive in Thailand.

Thai Raksa Chart has attracted several members of the red shirt movement, who have stood against military rule, and boasts several former cabinet ministers from previous governments aligned with former prime ministers Thaksin Shinawatra and his sister, Yingluck Shinawatra.

The party is widely seen as the reserve party for Pheu Thai, the political machine of the Shinawatra family which has won every election since 2001. Thaksin and Yingluck are both living in exile after corruption convictions, but are known to be close to the princess. Yingluck and Ubolratana have been seen together in recent months, including in London and at the World Cup in Russia.

Dr Patrick Jory, senior lecturer in South-East Asian history at the University of Queensland, called the intervention a bombshell that was "the biggest news in Thai politics" since the coup. He said it was inconceivable she would be running without the new king's blessing and suggests the royals had reached a deal with Thaksin.

"This is hugely significant," Dr Jory said. "It suggests the possibility that the political crisis that began in 2006 may be moving towards a resolution."

Thai Raksa Chart leader Preechapol Pongpanich said Ubolratana was the party's only candidate – each party can nominate three.

"She is knowledgeable and is highly suitable. I believe there will be no legal problems in terms of her qualification, but we have to wait for the Election Commission to endorse her candidacy," he said.

The princess was out of the limelight in Thailand after she married American Peter Jensen, but returned to the fold in 2001, a couple of years after her divorce. She has appeared in movies, hosted TV shows and boasts a significant social media following. She has two daughters, while an autistic son was killed during the 2004 Boxing Day tsunami.

The Thai royal family has long been said to be “above politics”, although it wields much power behind the scenes. Princess Ubolratana's father Bhumibol was revered as a father figure for the country, but famously intervened after the 1992 massacre and political crisis.

King Maha Vajiralongkorn does not enjoy the same reputation as his father, although he has been consolidating his power. Observers in Bangkok say Princess Ubolratana is close to her brother and is unlikely to have accepted nomination without his blessing, although this is impossible to verify.

The announcement was made at 9.10am local time on February 8, which is seen as an auspicious time.

Dr Jory said a blindsided Prayut was "in a very dark place now" and was effectively running against the king.

"Very risky business, especially with this king," he said. "Thai social media is having a big laugh at his expense right now. His future looks bleak.

"You have to be brave to make any predictions in Thai politics, but today's announcement brings the [junta's] era to an end. There is no chance of them holding onto power after the election, which is what many observers were predicting."

Later on Friday, a pro-junta party asked the Electoral Commission to reject Ubolratana's nomination on the grounds the monarchy is a sacred institution and should not be drawn into politics.

The Election Commission is required to endorse all candidates by next Friday.

Prayut accepted his nomination from the Palang Pracharat Party in an official statement.

"I am not aiming to extending my power but I am doing this for the benefit for the country and the people," he said.

with agencies