One of Nepal's last known dancing bears that was recently rescued has died after being transferred to a zoo, an animal rights activist said Wednesday, blaming the death on "negligence".

The two sloth bears were rescued in southern Nepal in December last year from a pair of itinerant street performers who used the animals for entertainment.

Shortly after their rescue, the bears -- 19-year-old male Rangila and Sridevi, a 17-year-old female -- were transferred to a zoo near the capital Kathmandu where they were put in cages on display.

A few weeks later, the female bear died.

"(We) were told that she had some problem in her liver and that it was jaundice," said Niraj Gautam of Jane Goodall Institute Nepal, who was involved in the rescue of the bears.

"These animals should have been thoroughly checked. There was nothing. That's the negligence we want to point out."

Gautam said that the bears should have been given special care and medical attention to help them rehabilitate after years of abuse as performing animals.

The bears were kept in small cages that were not properly cleaned and were displaying behaviours that suggested they were distressed, Gautam added.

"It feels like all our work was in vain," he said.

The government defended the care the bears have received, saying the zoo is the only facility in Nepal able to house them.

The Jane Goodall Institute and the World Animal Protection rights group are lobbying Nepal's government to have the surviving bear transferred to a special sanctuary for rescued dancing bears in neighbouring India, where the tradition of using the animals for entertainment was only finally stamped out in 2012.

"There are legal hurdles in transferring the animal to another country and the zoo is the only facility we have," said Gopal Prasad Bhattarai, deputy director of Department of National Parks and Wildlife Conservation.

"The zoo is giving the best care they (are) capable of (giving) to the bear."

Nepal outlawed the practice of performing bears back in 1973, a year after it was officially banned in India, but the tradition lingered on in parts of the country's south.

Dancing bears are trained as cubs to dance on their hind legs. Their snouts are pierced with a heated rod so they can be controlled by the tug of a rope or chain.

Dancing bears on the Indian subcontinent date back to the 13th century, when trainers belonging to the Muslim Qalandar tribe enjoyed royal patronage and performed before the rich and powerful.

Sloth bears, a critically endangered species, are found in India, Nepal, Sri Lanka and Bhutan. But shrinking habitats and rampant poaching have reduced their numbers, according to the International Union for Conservation of Nature.

They can grow up to 1.8 metres tall and weigh up to 140 kilograms.