Martial law and related restrictions on freedom of assembly and political activity were imposed after a bloodless military coup overthrew elected Prime Minister Thaksin Shinawatra on Sept. 19.
The Cabinet agreed to allow gatherings for political and other purposes in public places, but these are restricted to venues such as universities and auditoriums.
Under the post-coup restrictions, gatherings of more than five people were banned.
Surayud said that the measure to ease restrictions would take effect only after consultations with the military — which has formed an advisory council to the government — and approval from a newly appointed National Legislative Assembly.
"I want people to participate (in politics) and to listen to their opinions," Surayud told reporters after the Cabinet meeting, the second since the military appointed him as premier Oct. 1.
Surayud said specifically that members of political parties will be allowed to hold meetings. Their gatherings had also been banned under a separate order.
He said further discussion was needed before martial law could be lifted.
The military said it ousted Thaksin because political divisions in the country could turn violent. The country had been polarized since early this year after a mass movement was launched demanding Thaksin's ouster because of alleged corruption and abuse of power.
Thaksin was abroad at the time of the coup and remains in London. He has been warned by the military that that he should not yet return because it could endanger stability.
The coup leaders have defended the maintenance of the martial law, saying it is still needed to prevent any group from creating political chaos and violence — an apparent reference to the possibility of loyalists in Thaksin's Thai Rak Thai party trying to create opposition to the interim regime.
The coup leaders said Surayud's government will rule for about a year, until a new constitution is written and elections can be held in October 2007.
Western nations and human rights groups called last month's takeover a setback to democracy, and expressed disapproval of the restrictions on political and civil rights. The United States has called for the martial law to be revoked as soon as possible.